What changed in Empery Digital Inc.'s 2023 10-K compared to 2022?

Across the narrative sections we track, Empery Digital Inc. (EMPD) added 313 paragraphs, removed 282, and edited 185 between the 2022 and 2023 10-K filings. The biggest movers are Item 1. Business (+229/−213), Item 7. Management's Discussion & Analysis (+78/−63), Item 5. Market for Registrant's Common Equity (+4/−4).

What changed in Empery Digital Inc.'s MD&A (Item 7) in 2023?

Item 7 Management's Discussion & Analysis shows 78 new/edited paragraphs and 63 removed paragraphs year-over-year. Read the side-by-side diff to see exactly which revenue, margin, and outlook commentary was rewritten.

Did Empery Digital Inc.'s Legal Proceedings (Item 3) change in 2023?

Item 3 shows 1 added/edited paragraphs and 1 removed paragraphs — usually indicating new litigation disclosed or settled cases removed.

Where does this EMPD 10-K diff come from?

The source filings are Empery Digital Inc.'s official 2022 and 2023 Form 10-K annual reports from SEC EDGAR. 10q10k.net parses each filing, aligns paragraphs by section (Item 1, 1A, 1C, 2, 3, 7, 7A), and highlights every added, removed and edited sentence side-by-side.

What changed in Empery Digital Inc.'s 10-K — 2022 vs 2023

Paragraph-level year-over-year comparison of Empery Digital Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+313 added−282 removedSource: 10-K (2024-03-28) vs 10-K (2023-03-07)

Top changes in Empery Digital Inc.'s 2023 10-K

313 paragraphs added · 282 removed · 185 edited across 5 sections

Item 1. Business+229 / −213 · 144 edited
Item 7. Management's Discussion & Analysis+78 / −63 · 36 edited
Item 5. Market for Registrant's Common Equity+4 / −4 · 3 edited
Item 2. Properties+1 / −1 · 1 edited
Item 3. Legal Proceedings+1 / −1 · 1 edited

Item 1. Business

Business — how the company describes what it does

144 edited+85 added−69 removed101 unchanged

2022 filing

2023 filing

Biggest changeThe delisting of our common stock from Nasdaq could negatively impact us by (i) reducing the liquidity and market price of our common stock; (ii) reducing the number of investors willing to hold or acquire our common stock, which could negatively impact our ability to raise equity financing; (iii) impacting our ability to use a registration statement to offer and sell freely tradable securities, thereby preventing or limiting us from accessing the public capital markets; and (iv) impairing our ability to provide equity incentives to our employees. 20 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.

Biggest changeIf 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.

Due to these regulations, our motorcycles and UTVs are not legal for on-road use without homologation by customers who may be able to purchase parts or kits from other third-parties. All vehicles other than the Brat will come with a warning label stating “This vehicle is designed and manufactured for off-road use only.

Due to these regulations, our motorcycles and UTVs are not legal for on-road use without homologation by customers who may be able to purchase parts or kits from other third parties. All vehicles other than the Brat come or will come with a warning label stating “This vehicle is designed and manufactured for off-road use only.

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.

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.

Increased competition could result in lower vehicle 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.

Increased competition could result in lower vehicle sales, price reductions, revenue shortfalls, loss of customers and loss of market share, which could harm our business, prospects, financial condition, and operating results. 13 We may need to defend ourselves against intellectual property infringement claims, which may be time-consuming and could cause us to incur substantial costs.

As such, we will be subject to the local laws of each jurisdiction in which we sell our vehicles. These regulations may result in increased costs and expenses, which may materially and adversely affect our business, results of operations or financial condition. Human Capital Volcon Mission People are at the core of our DNA.

As such, we will be subject to the local laws of each jurisdiction in which we sell our vehicles. These regulations may result in increased costs and expenses, which may materially and adversely affect our business, results of operations or financial condition. 6 Human Capital Volcon Mission People are at the core of our DNA.

The Grunt has a small, optional, dash with limited data; however, the rider can use their smartphones and the app (subject to the rider’s cellular connectivity) as a dashboard by mounting it on the handlebars. The app makes it easier for users to set ride modes, check battery status, and update the bike’s firmware.

The Grunt EVO has a small, optional, dash with limited data; however, the rider can use their smartphones and the app (subject to the rider’s cellular connectivity) as a dashboard by mounting it on the handlebars. The app makes it easier for users to set ride modes, check battery status, and update the bike’s firmware.

Like the Grunt, the Runt LT’s large tires and low-slung chassis will make it easier to ride than traditional off-road motorcycles. The Runt LT will have a range of up to 35 miles in its “explore” mode setting and charges in less than three hours from a standard wall outlet.

Like the Grunt EVO, the Runt LT’s large tires and low-slung chassis will make it easier to ride than traditional off-road motorcycles. The Runt LT will have a range of up to 35 miles in its “explore” mode setting and charges in less than three hours from a standard wall outlet.

Many companies, like Super 73, make and sell eBikes and have a stronger established brand name and product line. 6 Government regulations We have focused on the off-road-only portion of the market because it is free of many of the homologation issues and highway certifications required to produce and sell an on-road vehicle.

Many companies, like Super 73, make and sell eBikes and have a stronger established brand name and product line. Government regulations We have focused on the off-road-only portion of the market because it is free of many of the homologation issues and highway certifications required to produce and sell an on-road vehicle.

In addition, such delays or issues with product quality could harm our reputation and our relationship with our dealers, distributors and customers. Our third-party manufacturers may be unable to meet our growing sales and delivery plans, which could harm our business and prospects. Our sales growth and delivery plan contemplate achieving and sustaining significant increases in vehicle deliveries.

In addition, such delays or issues with product quality could harm our reputation and our relationship with our dealers, distributors and customers. Our third party manufacturers may be unable to meet our growing sales and delivery plans, which could harm our business and prospects. Our sales growth and delivery plan contemplate achieving and sustaining increases in vehicle deliveries.

Unlike the Grunt, the Runt LT will only have a display to show the rider certain aspects of the vehicle such as speed, battery charge and mode. The app will not be available in the initial version of the Runt LT, but could be developed for future models.

Unlike the Grunt EVO, the Runt LT will only have a display to show the rider certain aspects of the vehicle such as speed, battery charge and mode. The app will not be available in the initial version of the Runt LT but could be developed for future models.

The estimated fulfillment of all orders we have received to date assumes that our third-party manufacturers can successfully meet our order quantities and deadlines. If they are unable to satisfy orders on a timely basis, our customers may cancel their orders.

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 on a timely basis, our customers may cancel their orders.

Any cancellations could harm our financial condition, business, prospects and operating results. We may be unable to improve our existing products and develop and market new products that respond to customer needs and preferences and achieve market acceptance.

Any cancellations could harm our financial condition, business, prospects and operating results. 15 We may be unable to improve our existing products and develop and market new products that respond to customer needs and preferences and achieve market acceptance.

For so long as we remain an emerging growth company, we will not be required to: · have an auditor report on our internal control over financial reporting pursuant to the Sarbanes-Oxley Act of 2002; · comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements (auditor discussion and analysis); · submit certain executive compensation matters to shareholders advisory votes pursuant to the “say on frequency” and “say on pay” provisions (requiring a non-binding shareholder vote to approve compensation of certain executive officers) and the “say on golden parachute” provisions (requiring a non-binding shareholder vote to approve golden parachute arrangements for certain executive officers in connection with mergers and certain other business combinations) of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010; and · include detailed compensation discussion and analysis in our filings under the Securities Exchange Act of 1934, as amended, and instead may provide a reduced level of disclosure concerning executive compensation.

For so long as we remain an emerging growth company, we will not be required to: · have an auditor report on our internal control over financial reporting pursuant to the Sarbanes-Oxley Act of 2002; · comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements (auditor discussion and analysis); · submit certain executive compensation matters to stockholders advisory votes pursuant to the “say on frequency” and “say on pay” provisions (requiring a non-binding stockholder vote to approve compensation of certain executive officers) and the “say on golden parachute” provisions (requiring a non-binding stockholder vote to approve golden parachute arrangements for certain executive officers in connection with mergers and certain other business combinations) of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010; and · include detailed compensation discussion and analysis in our filings under the Securities Exchange Act of 1934, as amended, and instead may provide a reduced level of disclosure concerning executive compensation.

ITEM 1. BUSINESS Overview We are an all-electric, off-road powersports vehicle company developing and building electric motorcycles and four-wheel utility terrain vehicles (UTVs), also known as side-by-sides, along with a complete line of upgrades and accessories. In October 2020, we began building and testing prototypes for our future offerings with two off-road motorcycles – the Grunt and the Runt.

ITEM 1. BUSINESS Overview We are an all-electric, off-road powersports vehicle company developing electric two and four-wheel motorcycles and utility terrain vehicles, or UTVs, also known as side-by-sides, along with a line of upgrades and accessories. In October 2020, we began building and testing prototypes for our future offerings with two off-road motorcycles – the Grunt and the Runt.

Although the Grunt can be used as delivered, we have developed an app, which can be downloaded at no additional cost, that we believe will enhance the riding experience.

Although the Grunt EVO can be used as delivered, we have developed an app, which can be downloaded at no additional cost, that we believe will enhance the riding experience.

Most Latin American importers must pay for orders in advance of shipment but can cancel an order prior to shipment and receive a refund without penalty. The estimated fulfillment of all orders we have received assumes our third-party manufacturers can successfully increase their production capacity in the future, of which there is no assurance.

Most importers must pay for orders in advance of shipment but can cancel an order prior to shipment and receive a refund without penalty. The estimated fulfillment of all orders we have received assumes our third party manufacturers can successfully increase their production capacity in the future, of which there is no assurance.

We are also considering homologation kits that customers could purchase to allow them to use our vehicles both on-road and off-road depending on federal, state and local government rules and regulations. Outdoor recreation is a major driver of the American economy. In 2021, the U.S.

Management anticipates that our cash on hand as of December 31, 2022 plus the cash expected to be generated from operations will not be sufficient to fund planned operations and maintain required cash balances for the Convertible Notes beyond one year from the date of the issuance of the financial statements as of and for the year ended December 31, 2022.

Management anticipates that our cash on hand as of December 31, 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 Convertible Notes beyond one year from the date of the issuance of the financial statements as of and for the year ended December 31, 2023.

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.

We currently operate in an area of the vehicle sector 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.

While we believe these efforts have improved the internal control over financial reporting during 2022, they did not fully remediate the material weaknesses as we have not fully documented all of our policies or procedures and we have not performed any testing of our internal controls.

While we believe these efforts have improved the internal control over financial reporting during 2023, they did not fully remediate the material weaknesses as we have not fully documented all of our policies or procedures and we have not performed any testing of our internal controls.

For our international distributors, they will be service providers or will identify third-parties who will be service providers to service our vehicles. Servicing electric vehicles is different than servicing vehicles with internal combustion engines and requires specialized skills, including high voltage training and servicing techniques.

For our international distributors, they will be service providers or will identify third parties who will be service providers to service our vehicles. Servicing electric vehicles is different from servicing vehicles with internal combustion engines and requires specialized skills, including high voltage training and servicing techniques.

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.

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 250,000,000 shares of common stock and 5,000,000 shares of preferred stock.

Our employees recognized that everyone is someone’s customer, which is why our goal is for each employee at Volcon is to treat others as you would want to be treated. Professional Employer Organization Since inception through December 31, 2022, we used professional employer organizations ("PEOs") to outsource our employee base, including processing of payroll and administration of benefits.

Our employees recognize that everyone is someone’s customer, which is why our goal is for each employee at Volcon is to treat others as you would want to be treated. Professional Employer Organization Since inception through December 31, 2022, we have used professional employer organizations ("PEOs") to outsource our employee base, including processing of payroll and administration of benefits.

These material weaknesses are as follows: · Inadequate segregation of duties within account processes due to limited personnel · Insufficient formal written policies and procedures for accounting, IT, financial reporting and record keeping 8 In addition to hiring more finance and accounting personnel in 2021 to improve our segregation of duties, through 2022, we have made further progress towards remediating these material weaknesses.

These material weaknesses are as follows: · Inadequate segregation of duties within account processes due to limited personnel · Insufficient formal written policies and procedures for accounting, IT, financial reporting and record keeping In addition to hiring more finance and accounting personnel in 2021 to improve our segregation of duties, through 2023, we have made further progress towards remediating these material weaknesses.

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 reputation, and a material and adverse effect on our business, prospects, financial condition and operating results . 10 Our third-party manufacturers operate outside of the United States, subjecting us to risks of international operations.

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 reputation, and a material and adverse effect on our business, prospects, financial condition and operating results . 10 Our third party manufacturers operate outside of the U.S., subjecting us to risks of international operations.

The Grunt’s frame, low seat height and oversize tires are designed to make it look like the fat tire bikes of the 1970s and ‘80s. These unique elements of the Grunt are not just for styling, but we believe they help make it easier to ride as compared to other off-road motorcycles on the market.

The Grunt EVO’s frame, low seat height and oversize tires are designed to make it look like the fat tire bikes of the 1970s and ’80s. These unique elements of the Grunt EVO are not just for styling, but we believe they help make it easier to ride as compared to other off-road motorcycles on the market.

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. 21 ITEM 1B.

We have experienced delays and 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 have encountered unanticipated challenges, such as supply chain constraints, that led to initial delays in producing our vehicles.

We have and could continue to experience delays and 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 have encountered unanticipated challenges, such as supply chain constraints, that led to initial delays in producing our vehicles.

The material weaknesses identified by our independent registered public accounting firm in our internal control over financial reporting in our 2020 audit have not been remediated as of December 31, 2022.

The 2023 Stag is our first UTV model launched and will seat up to four people, with folding rear seats, a four point harness system, high performance shocks and tires, on demand all-wheel drive, variable power steering, and a full line of accessories.

The 2024 Stag LTD is our first UTV model launched and will seat up to four people, with folding rear seats, a four point harness system, high performance shocks and tires, on demand all-wheel drive, variable power steering, and a full line of accessories.

If we receive objections from other entities and are unsuccessful in obtaining agreements or otherwise resolving the matters with these entities, we will need to consider the use of different trademarks for our Company and our products. Competition There are dozens of manufacturers that sell off-road motorcycles, UTVs and eBikes in the United States and even more globally.

Pursuant to the consulting agreements, upon the occurrence of a Fundamental Transaction (as contemplated by such agreements), 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.

Pursuant to the consulting agreements, upon the occurrence of a Fundamental Transaction (as contemplated by such agreement), 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, Highbridge will receive a cash payment equal to 1% of such gross sales price.

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 current 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.

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 current products, develop new innovative products, maintain or lower product costs and distinguish our products from our competitors’ products through innovation and design. Product development requires significant financial, technological, and other resources.

The inability of these suppliers to deliver necessary components for our vehicles according to our schedule and at prices, quality levels and volumes acceptable to us, or our inability to efficiently manage these third-party manufacturers and their suppliers could have a material adverse effect on our financial condition and operating results.

The inability of these suppliers to deliver necessary components for our vehicles according to our schedule and at prices, quality levels and volumes acceptable to us, or our inability to efficiently manage these third party manufacturers and their suppliers has in the past and could in the future have a material adverse effect on our financial condition and operating results.

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.

A significant and growing number of established and new companies have entered or are reported to have plans to enter the EV market, including the off-road market that we intend to pursue.

Our third-party manufacturers operate outside of the United States, as a result we are increasingly exposed to the challenges and risks of doing business outside the United States, which could reduce our revenues or profits, increase our costs, result in significant liabilities or sanctions, or otherwise disrupt our business.

Our third party manufacturers operate outside of the U.S. and as a result we are increasingly exposed to the challenges and risks of doing business outside the U.S., which could reduce our revenues or profits, increase our costs, result in significant liabilities or sanctions, or otherwise disrupt our business.

The low seat height and large tires are designed to make the Grunt stable at all speeds on all surfaces in the off-road environment. The electric drivetrain has no clutch and no gears, making it easy for almost any customer to operate.

The low seat height and large tires are designed to make the Grunt EVO stable at all speeds on all surfaces in the off-road environment. The electric drivetrain has no clutch and no gears, making it easy for almost anyone to operate.

Our motorcycles feature unique frame designs protected by design patents. Additional utility and design patents have been filed for other aspects of Volcon’s vehicles. We initially began to sell and distribute the Grunt and related accessories in the U.S. on a direct-to-consumer sales platform. We terminated our direct-to-consumer sales platform in November 2021.

Our motorcycles feature unique frame designs protected by design patents. Additional utility and design patents have been filed for other aspects of Volcon’s vehicles. Initially, we began to sell and distribute the Grunt and related accessories in the United States on a direct-to-consumer sales platform. However, we terminated our Grunt direct-to-consumer sales platform in November 2021.

Furthermore, if our 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 we will have the right, in our sole discretion, to make the foregoing $15.0 million payment by the issuance of shares of our common stock. Since Messrs.

Furthermore, if our market capitalization exceeds $300.0 million for a period of 21 consecutive trading days, Highbridge will receive an additional cash payment equal to $15.0 million; provided that we will have the right, in our sole discretion, to make the foregoing $15.0 million payment by the issuance of shares of our common stock.

Our future operating results and financial condition could be materially affected to the extent any of these actions occur. In addition, the prosecution of intellectual property infringement and trade secret theft outside of the United States may be more difficult than in the United States.

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. 13 We have a registration for the trademark GRUNT in the United States.

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 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 China in retaliation.

We cannot predict what actions may be taken with respect to tariffs or trade relations between the U.S. and China, what products may be subject to such actions, or what actions may be taken by China in retaliation.

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 buydowns on the dealers’ customer financing to incentivize their customers’ purchase of our vehicles.

We may incur costs to incentivize dealers to buy our vehicles including free dealer financing for certain periods or based on purchase volumes, interest rate buydowns on the dealers’ customer financing to incentivize their customers’ purchase of our vehicles.

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. Warranty expense is recorded as a component of cost of revenues in the statement of operations.

These risks include: · an increase in the cost, or decrease in the available supply, of materials used in the battery packs; · disruption in the supply of battery packs due to quality issues or recalls by battery cell manufacturers; · sanctions imposed by the U.S. on countries in which our products are manufactured or where parts are manufactured for our third-party manufacturers; and · tariffs on the products we source in China. 11 Our business is dependent on the continued supply of battery cells for the battery packs used in our vehicles.

For instance, we are exposed to multiple risks relating to battery packs. 11 These risks include: · an increase in the cost, or decrease in the available supply, of materials used in the battery packs; · disruption in the supply of battery packs due to quality issues or recalls by battery cell manufacturers; · sanctions imposed by the U.S. on countries in which our products are manufactured or where parts are manufactured for our third party manufacturers; and · tariffs on the products we source in China.

As of August 2022, we have outsourced the manufacturing of all of our vehicles and plan to outsource all manufacturing of our vehicles for the foreseeable future. In September 2022, we also reduced headcount in our product development and administrative departments, as we have outsourced the design and development of our vehicles.

We have outsourced the manufacturing of all of our vehicles and plan to outsource all manufacturing of our vehicles for the foreseeable future. We also reduced headcount in all our departments, as we have outsourced the design and development of our vehicles.

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.

This payment 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.

We may seek to raise additional funds, finance acquisitions or develop strategic relationships by issuing equity or convertible debt securities, which would reduce the percentage ownership of our existing stockholders.

We will need to raise additional funds to finance our operations, to complete acquisitions or to develop strategic relationships by issuing equity or convertible debt securities, which would reduce the percentage ownership of our existing stockholders.

As an “emerging growth company” under the JOBS Act, we are permitted to, and intend to, rely on exemptions from certain disclosure requirements.

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.

Additionally, for so long as we remain an emerging growth company, we: · may present only two years of audited financial statements and only two years of related Management’s Discussion and Analysis of Financial Condition and Results of Operations, or MD&A; and · are eligible to claim longer phase-in periods for the adoption of new or revised financial accounting standards under §107 of the JOBS Act. 23 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.

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.

The assembly, use, storage, transport and disposal of battery packs is subject to extensive regulation. Complying with these requirements involves substantial costs, and any failure to do so may result in heavy fines or other restrictions on our operations. Additionally, we may be responsible for the recycling and proper disposal of expended batteries from our vehicles.

Complying with these requirements involves substantial costs, and any failure to do so may result in heavy fines or other restrictions on our operations. Additionally, we may be responsible for the recycling and proper disposal of expended batteries from our vehicles.

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.

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.

In October 2022, we signed an exclusive distribution and co-branding agreement with Torrot, which replaces the original distribution agreement and allows Volcon to co-brand Torrot’s youth motorcycles using the Volcon name and branding in the United States and Latin America. This was expanded to Canada through a separate agreement signed in December 2022.

In October 2022, we signed an exclusive distribution and co-branding agreement with Torrot, which replaces the original distribution agreement and allows Volcon to co-brand Torrot’s youth motorcycles using the Volcon name and branding in the U.S. and Latin America. This was expanded to Canada through a separate agreement signed in December 2022. These products are manufactured by Torrot in Spain.

Orders from U.S. dealers do not require an upfront payment and are cancelable prior to shipment with no penalty. Orders from U.S. consumers for the Stag required a minimal reservation fee and all orders are cancelable prior to shipment, although the reservation fee is forfeited.

We provide a one-year warranty on the Grunt, Volcon Youth motorcycles and the Brat, and a two-year warranty on the battery pack subject to a specified number of charging cycles. We expect the warranty for our other motorcycles will be consistent with the warranty on the Grunt and Brat.

The Volcon Youth motorcycles were manufactured by Torrot in Spain. We provide a one-year warranty on the Grunt EVO, Volcon Youth motorcycles and the Brat, and a two-year warranty on the battery pack subject to a specified number of charging cycles. We expect the warranty for our other motorcycles will be consistent with these warranties.

These sanctions have also impacted the U.S. and global economy and could result in an economic recession which could cause a broader disruption to the Company’s supply chain and distribution network and customer demand for our products. These factors would have a negative impact on our results of operations and cash flows.

A number of large companies have announced layoffs. 16 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.

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 have also applied to register additional marks – including VOLCON, VOLCON BRAT, VOLCON STAG, GRUNT EVO, EMPOWERING ADVENTURE, RUNT, and STAG - in the United States, Canada, and certain additional countries in Latin America, and many of these marks are now allowed or registered in some of these countries.

We have also applied to register additional trademarks – including VOLCON, VOLCON BRAT, VOLCON STAG, GRUNT EVO, EMPOWERING ADVENTURE, RUNT, VOLCON RUNT, STAG, and VOLCON STAG - in the U.S., Canada, New Zealand, Australia and certain additional countries in Latin America, and many of these trademarks are now allowed or registered in these countries.

We have also applied to register additional marks – including VOLCON, VOLCON BRAT, VOLCON STAG, GRUNT EVO, EMPOWERING ADVENTURE, RUNT, and STAG - in certain additional countries including the United States, Latin America, and Canada, and many of these marks are now allowed or registered in some of these countries.

Because we are a young company with limited sales history and recurring losses, we may not be able to obtain these inventory financing sources which may result in dealers not wanting to sell our vehicles. In the U.S., we will sell the Brat on our website in addition to our dealer network.

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. 15 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.

Any disruption in the supply of battery cells, including those caused by the conflict between Russia and the Ukraine and sanctions imposed on Russia noted above, could disrupt production of our vehicles.

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, including those caused by the conflict between Russia and the Ukraine and sanctions imposed on Russia noted below, could disrupt production of our vehicles.

As of December 31 , 2022, we have signed agreements with five 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 in their assigned countries/markets.

As of March 15, 2024, we have signed agreements with six importers in Latin America, one importer for the Caribbean Region, collectively referred to herein as the LATAM importers, one importer in New Zealand, and one importer in Australia to sell our vehicles and accessories in their assigned countries/markets.

Beginning January 1, 2023, we have discontinued the use of a PEO and have hired a third-party payroll processing service provider and a third-party administrator of benefits. As of December 31, 2022, in the U.S we have 52 full-time employees and one part-time employee and one full-time individual in Canada on a PEO arrangement.

Beginning January 1, 2023, we discontinued the use of a PEO and have hired a third party payroll processing service and a third party administrator of benefits. As of December 31, 2023, in the U.S we have 35 full-time employees and one part-time employee and we do not have any employees outside of the U.S.

The Runt In the second quarter of 2023, the 2023 Volcon Runt LT is also expected to be available to the market. The Runt LT, which is a smaller version of the groundbreaking Grunt, is better suited for small statured riders, more compact properties and trails, or as a pit bike at race events, while still delivering robust off-road capabilities.

The Runt LT The Runt LT, which is a smaller version of the Grunt EVO, is better suited for small statured riders, more compact properties and trails, or as a pit bike at race events, while still delivering robust off-road capabilities.

Similarly, new unit gross margin percentage at the dealership level was 17.4% on average during 2021. · Accessory sales for UTVs continue to skyrocket, with consumers on average purchasing $918 worth of accessories at the time of the new UTV purchase in 2021, Lightspeed data shows. · According to S&P Global Mobility, 2021 new and used UTV registrations reached 334,000, compared to 351,000 in 2020, showing continued post-pandemic strength in the segment.

Similarly, new unit gross margin percentage at the dealership level was 17.1% on average during 2022 (comparted to 17.4% in 2021). · Accessory sales for UTVs on average are $977 worth of accessories at the time of a UTV sport purchase in 2022, Lightspeed data shows. · According to S&P Global Mobility, 2022 new and used UTV registrations were 318,216 compared to 334,000 in 2021, showing continued post-pandemic strength in the segment.

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. The terms of the Convertible Notes and Warrants impose additional challenges on our ability to raise capital.

As of December 31,2022, we have signed agreements with 151 dealers to sell our vehicles and accessories. We hired our first regional sales manager in Canada to begin developing our dealer network for Canadian powersports vehicle dealers. We are required to comply with manufacture/dealer laws in each state in which we sell our vehicles through dealers.

In 2022 we hired our first regional sales manager in Canada to begin developing our dealer network for Canadian powersports vehicle dealers but in 2023 we determined we would defer selling our products in Canada and as of December 31, 2023 and we no longer have any Canadian employees. 14 We are required to comply with manufacture/dealer laws in each state in which we sell our vehicles through dealers.

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 our business, results of operations or financial condition. 16 Our success is dependent upon the success of the off-road vehicle industry and upon consumers’ willingness to adopt electric vehicles.

Any product defects, delays, 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. 12 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.

Through December 31, 2022, we have entered into 151 dealership agreements covering 34 states. We are currently negotiating additional dealership agreements with retail partners to display and sell our vehicles and accessories. Some of these dealers will also provide warranty and repair services to our customers.

Sales and Marketing Through March 15, 2024, we have 103 dealers covering 28 states. We are currently negotiating additional dealership agreements with retail partners to display and sell our vehicles and accessories. Some of these dealers will also provide warranty and repair services to our customers.

Our business success will depend in large part on our third-party vendors’ ability to economically produce our vehicles and our ability to market and sell our vehicles at sufficient capacity to meet the demands of our customers. 9 Our reliance on third-parties for the manufacture, design and development of our vehicles exposes us to a number of risks which are outside our control, including: · unexpected increases in manufacturing costs; · interruptions in vehicle deliveries if a third-party vendor is unable to complete production or design in a timely manner; · shipping delays due to availability of ships, trains, trucks or containers to ship products or delays at ports to ship to the U.S or delays at U.S. ports; and · inability to control quality of finished products.

Our reliance on third parties for the manufacture, design and development of our vehicles exposes us to a number of risks which are outside our control, including: · delays due to design and development of our products to meet our product specifications · delays due to defective parts or components · unexpected increases in manufacturing costs; · interruptions in vehicle deliveries if a third party vendor is unable to complete production or design in a timely manner; · shipping delays due to availability of ships, trains, trucks or containers to ship products or delays at ports to ship products to us or to our customers; and · inability to control the quality of finished products. 9 Our reliance on third parties reduces our control over the manufacturing, design and development processes, including reduced control over timing to release products, quality, product costs and product supply.

In the United States, the Consumer Product Safety Commission (CPSC) has federal oversight over product safety issues related to off-road vehicles and eBikes. We believe that our products comply with all applicable CPSC safety standards as well as all other applicable safety standards in the United States.

In the U.S., the Consumer Product Safety Commission (CPSC) has federal oversight over product safety issues related to off-road vehicles and eBikes. We believe that our products comply with all applicable CPSC safety standards as well as all other applicable safety standards in the U.S. The assembly, use, storage, transport and disposal of battery packs is subject to extensive regulation.

Bureau of Economic Analysis, or the BEA, found that outdoor recreation drives $454 billion of the current-dollar gross domestic product for the U.S.

Bureau of Economic Analysis, or the BEA, found that outdoor recreation drives $563 billion of the current-dollar gross domestic product for the U.S. The BEA noted that motorcycles and ATVs make up $11.5 billion of that total.

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.

We are party to certain agreements with a founder of the Company and certain executive officers that may create a conflict of interest for our board of directors in evaluating a potential change of control transaction. We had previously entered into a consulting agreement Highbridge Consultants, LLC (“Highbridge”), an entity controlled by Mr.

Products that we have manufactured for us in Mexico, Spain, and China may also be subject to any uncertainty of trade relations between such countries and the United States, which could cause the cost of our products manufactured there to rise, or result in our inability to continue to use third-party manufacturers in such country, resulting in a need to find alternative sources of manufacture, which could result in the delay of manufacture and supply of our products, increase our cost of manufacture, and cause a delay in our shipments to customers and a delay or cancellation of orders.

S., which could cause the cost of our products manufactured there to rise, or result in our inability to continue to use third party manufacturers in such country, resulting in a need to find alternative sources of manufacture, which could result in the delay of manufacture and supply of our products, increase our cost of manufacture, and cause a delay in our shipments to customers and a delay or cancellation of orders.

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 to our reputation and financial condition, or diversion of financial and management resources from the operation of our business. 8 Our transition to an outsourced manufacturing, design and development business model may not be successful, which could harm our ability to deliver products and recognize revenue.

We could be negatively impacted by cybersecurity attacks and are subject to evolving privacy laws in the U.S. and other jurisdictions that could adversely impact our business and require that we incur substantial costs.

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. 17 We could be negatively impacted by cybersecurity attacks and are subject to evolving privacy laws in the U.S. and other jurisdictions that could adversely impact our business and require that we incur substantial costs.

The long-term outlook for growth and demand for powersports, according to the report, especially off-road vehicles, or ORVs, and power watercraft, or PWCs is positive. The Stratview Research report estimates the powersports market to grow at a compound annual growth rate, or CAGR, of 5.7% during 2022 to 2027 to reach a value of $47.9 billion by 2027.

The Stratview Research report estimates the powersports market to grow at a compound annual growth rate, or CAGR, of 5.7% during 2022 to 2027 to reach a value of $47.9 billion by 2027.

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Item 2. Properties

Properties — owned and leased real estate

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2022 filing

2023 filing

Biggest changeITEM 2. PROPERTIES Our corporate headquarters is located in Round Rock, Texas, where we currently lease approximately 23,300 square feet of space across three facilities. We believe that our existing space is adequate for our current operations. We believe that suitable replacement and additional space, if necessary, will be available in the future on commercially reasonable terms.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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2022 filing

2023 filing

Biggest changeWe have insurance policies covering potential losses where such coverage is cost effective. ITEM 4. MINE SAFETY DISCLOSURES Not applicable. 22 PART II

Biggest changeWe have insurance policies covering potential losses where such coverage is cost effective. ITEM 4. MINE SAFETY DISCLOSURES Not applicable. 25 PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

3 edited+1 added−1 removed2 unchanged

2022 filing

2023 filing

Biggest changeWe currently intend to retain earnings, if any, to finance the growth and development of our business. We do not expect to pay any cash dividends on our common stock in the foreseeable future.

Biggest changeWe do not expect to pay any cash dividends on our common stock in the foreseeable future.

We did not issue any equity securities during the fourth quarter of 2022 that were not registered under the Securities Act. ITEM 6. [RESERVED]

We did not issue any equity securities during the fourth quarter of 2023 that were not registered under the Securities Act. ITEM 6. [RESERVED]

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES. Market Information Our common stock is listed on the NASDAQ Stock Market LLC under the symbol “VLCN”. Holders As of March 3, 2023, we had 1,210 shareholders of record and 24,613,234 outstanding shares.

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES. Market Information Our common stock is listed on the NASDAQ Stock Market LLC under the symbol “VLCN”. Holders As of March 26, 2024, we had 1,159 stockholders of record and 18,748,955 outstanding shares.

Removed

Dividends We have never declared or paid any cash dividends on our capital stock. Pursuant to the Convertible Notes we issued in August 2022, until all of the Convertible Notes have been converted, redeemed or otherwise satisfied in full, we are not permitted without the prior written consent of the note holders to declare or pay any cash dividend.

Added

Dividends We have never declared or paid any cash dividends on our capital stock. The payment of dividends in the future will be contingent upon our revenues and earnings, if any, capital requirements and general financial condition. We currently intend to retain earnings, if any, to finance the growth and development of our business.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

36 edited+42 added−27 removed14 unchanged

2022 filing

2023 filing

Biggest changeFor the year ended December 31, 2022 sales and marketing expenses were $5,694,556 and include $1,636,619 for promoting our products, employee payroll costs of $1,949,064, stock-based compensation of $764,517 for share-based awards granted to employees and consultants, $66,625 for professional fees, $356,958 for facilities costs primarily to operate our now closed dealership in Denver, Colorado, including costs of $148,323 for closing this store, and travel costs of $294,878 primarily related to costs incurred for travel to build our dealer network. 26 Sales and marketing expenses were $2,872,620 for the year ended December 31, 2021 and were primarily related to expenses associated with promoting our products and brand of $1,260,800, professional fees of $412,429, primarily composed of legal fees of $161,398 to develop our dealer network and evaluate compliance with dealer laws across the United States and $92,888 for consulting fees related to the development of our international and domestic sales channels, employee payroll costs of $645,103, stock-based compensation of $313,718 for share-based awards granted to employees and consultants and $177,628 of facilities costs, primarily to operate our dealership in Denver, Colorado.

Revenue Revenue for the year ended December 31, 2022, was $4,546,686 which represents sales of Grunts of $3,576,796 and accessories and parts of $250,780. The sales of Grunts are offset by promotional rebates and discounts provided to dealers and distributors during 2022 resulting in $930,422 being recorded to reduce revenue.

Revenue for the year ended December 31, 2022, was $4,546,686, which represents sales of Grunts of $3,576,796 and accessories and parts of $250,780. The sales of Grunts are offset by promotional rebates and discounts provided to dealers and distributors during 2022 resulting in $930,422 being recorded to reduce revenue.

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), also known as side-by-sides, along with a complete line of upgrades and accessories. In October 2020, we began building and testing prototypes for our future offerings with two off-road motorcycles – the Grunt and the Runt.

Overview We are an all-electric, off-road powersports vehicle company developing electric two and four-wheel motorcycles and utility terrain vehicles, or UTVs, also known as side-by-sides, along with a line of upgrades and accessories. In October 2020, we began building and testing prototypes for our future offerings with two off-road motorcycles – the Grunt and the Runt.

We expect general and administrative expenses to remain relatively consistent with the fourth quarter of 2022 over the next several quarters as we have decreased staffing in some administrative areas but expect costs such as insurance and public company reporting and compliance requirements to offset the employee cost reductions.

We expect general and administrative expenses to remain relatively consistent with the fourth quarter of 2023 over the next several quarters as we have decreased staffing in some administrative areas but expect costs such as insurance and public company reporting and compliance requirements to offset the employee cost reductions.

Prior to the termination of our direct-to-consumer sales platform, U.S. customers made deposits for 360 Grunts (net of cancellations) and five Runts, plus accessories and a delivery fee representing total deposits of $2.2 million. These orders were cancelable by the customer until the vehicle was delivered and after a 14-day acceptance period, therefore the deposits were recorded as deferred revenue.

Prior to the termination of our direct-to-consumer sales platform, U.S. consumers made deposits for 360 Grunts (net of cancellations) and five Runts, plus accessories and a delivery fee representing total deposits of $2.2 million. These orders were cancelable by the consumer until the vehicle was delivered and after a 14-day acceptance period, therefore the deposits were recorded as deferred revenue.

Cash used in investing activities Net cash used in investing activities was $0.8 million for the year ended December 31, 2022, primarily consisting of $0.3 million of purchases of equipment and tooling related to our Brat, Grunt, and Runt manufacturing and product development, $0.2 million for the cost of Grunts capitalized as demonstration units, and $0.2 million related to computers and equipment due to headcount growth prior to headcount reductions that occurred in the third quarter of 2022. 28 Net cash used in investing activities was $0.8 million for the year ended December 31, 2021, and mainly included purchases of equipment and tooling related to the manufacturing of the Grunt.

Net cash used in investing activities was $0.8 million for the year ended December 31, 2022, primarily consisting of $0.3 million of purchases of equipment and tooling related to our Brat, Grunt, and Runt manufacturing and product development, $0.2 million for the cost of Grunts capitalized as demonstration units, and $0.2 million related to computers and equipment due to headcount growth prior to headcount reductions that occurred in the third quarter of 2022.

Cash provided by financing activities Cash provided from financing activities for the year ended December 31, 2022, was $40.4 million and was related to proceeds received from both the public offering of our common stock in February 2022 where we sold 6,666,667 shares at $3.00 per share for net cash proceeds of $18.1 million and the issuance of senior Convertible Notes and Note Warrants in August 2022 for net cash proceeds of $22.3 million.

Cash provided from financing activities for the year ended December 31, 2022, was $40.4 million and was related to proceeds received from both the public offering of our common stock in February 2022 where we sold 29,630 shares at $675.00 per share for net cash proceeds of $18.1 million and the issuance of senior Convertible Notes and Note Warrants in August 2022 for net cash proceeds of $22.3 million.

Our continuation as a going concern is dependent upon our ability to attain profitable operations and if necessary, obtain continued financial support from the issuance of debt or equity. As of December 31, 2022, we had incurred an accumulated deficit of $75.7 million since inception.

Our continuation as a going concern is dependent upon our ability to attain profitable operations and if necessary, obtain continued financial support from the issuance of debt or equity. As of December 31, 2023, we had incurred an accumulated deficit of $120.8 million since inception.

Our motorcycles feature unique frame designs protected by design patents. Additional utility and design patents have been filed for other aspects of Volcon’s vehicles. 23 We initially began to sell and distribute the Grunt and related accessories in the U.S. on a direct-to-consumer sales platform. We terminated our direct-to-consumer sales platform in November 2021.

Our motorcycles feature unique frame designs protected by design patents. Additional utility and design patents have been filed for other aspects of Volcon’s vehicles. 26 We initially began to sell and distribute the Grunt and related accessories in the United States (‘U.S.”) on a direct-to-consumer sales platform. We terminated our Grunt direct-to-consumer sales platform in November 2021.

Revenue for the year ended December 31, 2021, was $448,819 and represents the sale of Grunts and accessories of $17,390. 25 Cost of goods sold Cost of goods sold for the year ended December 31, 2022 were $13,412,820 including labor costs of $1,740,645 for employees and contractors performing assembly, logistics, quality control testing, and service and warranty of Grunts through August 2022, when assembly of the Grunt was discontinued, and stock-based compensation of $344,374 f or share-based awards for these employees.

Cost of goods sold for the year ended December 31, 2022 were $13,412,820 including labor costs of $1,740,645 for employees and contractors performing assembly, logistics, quality control testing, and service and warranty of Grunts through August 2022, when assembly of the Grunt was discontinued, and stock-based compensation of $344,374 f or share-based awards for these employees.

Cost of goods sold for Brats and Torrot Youth motorcycles, excluding shipping, was $235,160 and $206,596, respectively, this includes a $82,627 write-down for Torrot Youth inventory to sell remaining quantities on hand in anticipation of the Volcon Youth branded motorcycles which arrived in the first quarter of 2023. Facilities costs were $585,114 for our manufacturing facility and inventory warehousing costs.

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. The Brat is being manufactured by a third-party. In November 2022 we finalized an agreement for a third-party to manufacture the Runt.

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.

Depreciation expense of $285,564 was recorded in the year and a loss on the write-off of property and equipment of $170,657 was recognized for the disposal of manufacturing assets due to the outsourcing of Grunt assembly. Cost of goods sold for the year ended December 31, 2021, was $10,507,454.

As of December 31, 2022, we have signed agreements with five 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 in their assigned countries/markets.

Cash used in operating activities Net cash used in operating activities was $33.7 million for the year ended December 31, 2022 and includes all of our operating costs except non-cash expenses including stock-based compensation of $3.3 million, write-down of inventory and prepaid inventory of $1.7 million , depreciation and amortization of $0.8 million, non-cash interest expense for the amortization of debt issuance costs and accretion of principal on Convertible Notes of $2.2 million, amortization of right of use assets and lease costs of $0.4 million and losses on write-off of assets and leases of $0.6 million.

As of December 31, 2023, we have an increase of $0.4 million in customer deposits, primarily for orders to be fulfilled from two of our Latin American distributors for shipments of Brats and Grunt EVOs. 31 Net cash used in operating activities was $33.7 million for the year ended December 31, 2022 and includes all of our operating costs except non-cash expenses including stock-based compensation of $3.3 million, write-down of inventory and prepaid inventory of $1.7 million , depreciation and amortization of $0.8 million, non-cash interest expense for the amortization of debt issuance costs and accretion of principal on Convertible Notes of $2.2 million, amortization of right of use assets and lease costs of $0.4 million and losses on write-off of assets and leases of $0.6 million.

Non-cash interest expense of $2,231,403 was recognized for the amortization of debt issuance costs and accretion of principal on the Convertible Notes issued in August 2022.

Non-cash interest expense of $2,231,403 was recognized for the amortization of debt issuance costs and accretion of principal on the Convertible Notes issued in August 2022. We expect interest expense to decrease in the future due to the exchange of the May 2023 Notes for Preferred Stock.

Net Loss Net loss for the year ended December 31, 2022 was $34,235,405, compared to $40,125,109 for the year ended December 31, 2021. Liquidity and Capital Resources On December 31, 2022, we had cash of $11.5 million, including $0.5 million of restricted cash and we had a negative working capital of $0.5 million.

Net Loss Net loss for the year ended December 31, 2023 was $45,071,211, compared to $34,235,405 for the year ended December 31, 2022. Liquidity and Capital Resources On December 31, 2023, we had cash of $8.2 million, including $0.2 million of restricted cash and we had a negative working capital of $21.4 million.

In 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 possibly as early as the first half 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.

In July 2022, we expanded our offerings with the introduction of the first of our Volcon UTV models, the Stag, which we initially anticipated would be available for delivery to customers in the fourth quarter of 2023, followed by additional models of the Stag expected in 2024 and 2025.

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. 32 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.

In October 2022, we signed an expanded agreement with Torrot to also be the exclusive distributor of Torrot and Volcon co-branded youth electric motorcycles in the United States as well as Latin America. This agreement supersedes the original Torrot agreement and once all Torrot branded inventory is sold, we will no longer distribute Torrot branded motorcycles.

In October 2022, we signed an expanded agreement with Torrot, which superseded the June 2022 agreement, to also be the exclusive distributor of Torrot and Volcon co-branded youth electric motorcycles in the U.S. as well as Latin America.

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 2024, we expect to expand our global sales of our vehicles and accessories beyond our current distributor base. 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.

Sales and marketing 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.

The increase in costs for products will partially be offset by reductions in cost for salaries and benefits due to reductions in headcount completed in 2023. 29 Sales and marketing 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.

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. Through December 31, 2022, we have entered into 151 dealership agreements. Upon sale of a Grunt the dealer may order an additional Grunt.

Additionally, one of the covenants for our Convertible Notes requires us to have $10 million of cash on hand if principal (and interest, if any) of $15 million or more of the Convertible Notes is outstanding as of September 30, 2023 and December 31, 2023 (subject to adjustment if the principal (and interest, if any) is below $15 million). 29 Management anticipates that our cash on hand as of December 31, 2022 plus the cash expected to be generated from operations will not be sufficient to fund planned operations and maintain required cash balances for the Convertible Notes beyond one year from the date of the issuance of the financial statements as of and for the year ended December 31, 2022.

Management anticipates that our cash on hand as of December 31, 2023 plus the cash expected to be generated from operations will not be sufficient to fund planned operations during the near term and not beyond one year from the date of the issuance of the financial statements as of and for the year ended December 31, 2023.

Results of Operations The following financial information is for the years ended December 31, 2022 and 2021. 2022 2021 Revenue $ 4,546,686 $ 448,819 Cost of goods sold 13,412,820 10,507,454 Gross margin (8,866,134 ) (10,058,635 ) Operating expenses: Sales and marketing 5,694,556 2,872,620 Product development 8,456,157 10,465,186 General and administrative 9,046,778 15,783,409 Total operating expenses 23,197,491 29,121,214 Loss from operations (32,063,625 ) (39,179,850 ) Interest and other expense (2,171,780 ) (945,260 ) Net loss $ (34,235,405 ) $ (40,125,109 ) Due to recurring losses, there is no provision for income taxes for any period presented.

Results of Operations The following financial information is for the years ended December 31, 2023 and 2022. 2023 2022 Revenue $ 3,260,988 $ 4,546,686 Cost of goods sold 11,391,040 13,412,820 Gross margin (8,130,052 ) (8,866,134 ) Operating expenses: Sales and marketing 7,405,705 5,694,556 Product development 7,868,985 8,456,157 General and administrative 6,388,007 9,046,778 Total operating expenses 21,662,697 23,197,491 Loss from operations (29,792,749 ) (32,063,625 ) Interest and other expense (15,278,462 ) (2,171,780 ) Net loss $ (45,071,211 ) $ (34,235,405 ) Due to recurring losses, there is no provision for income taxes for any period presented. 28 Revenue Revenue for the year ended December 31, 2023, was $3,260,988 which represents sales of Brats of $2,341,097, Grunt EVO motorcycles of $465,438, Grunt motorcycles of $129,117, Volcon Youth and Torrot motorcycles of $498,160 and accessories and parts of $261,663 offset by $436,333 for rebates and dealer discounts.

We received prototypes of the Runt in the first quarter of 2023 and expect to begin sales in the second quarter of 2023. The estimated fulfillment of all orders we have received to date assumes that our third-party manufacturers can successfully meet our order quantities and deadlines.

There is no recourse to the Company or the dealer if the dealer’s customer defaults on the financing agreement with this third-party.

There is no recourse to the Company or the dealer if the dealer’s customer defaults on the financing agreement with the third party. We sell our vehicles internationally through importers. Each importer buys vehicles by the container and sells vehicles and accessories to local dealers or directly to consumers.

Net cash used in operating activities was $24.1 million for the year ended December 31, 2021 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 Net cash used in operating activities was $29.6 million for the year ended December 31, 2023 and includes all of our operating costs except stock-based compensation of $2.6 million, write-down of inventory of $4.3 million, depreciation and amortization of $0.2 million, non-cash interest expense for the amortization of debt issuance costs and accretion of principal on Convertible Notes and May 2023 Notes of $5.0 million, gain on change in derivative financial liabilities of $13.5 million, loss on extinguishment of Convertible Notes of $22.3 million, bad debt expense of $0.1 million.

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. 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 2023 and expect to begin selling in Canada in 2023.

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 employee costs related to product development to decrease in the future since we have outsourced certain design and development of our new vehicle models. The decrease will be offset by increases due to outsourced design and development costs and costs related to prototype costs for the Stag, Grunt EVO and Runt.

We expect costs for design and development costs related to the Grunt EVO to decrease since it is in production and we expect costs related to the design and development of the Runt LT to be minimal since we already have prototypes of the product.

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 the batteries, we have a fixed cost per unit for the Stag in our contract with our third-party manufacturer.

In 2024 we expect revenue and cost of goods sold, other than inventory write downs, Torrot contract termination costs and PO cancellation costs, to increase due to the expected increase in sales of the Grunt EVO and Stag. Additional cost savings may be realized if the third party manufacturer can source or manufacture parts at a lower cost.

There can be no assurance that such 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.

As such, to continue our operations in the near term we will be required to raise additional financing in the third quarter of 2024. We do not have commitments for any such financing, and there can be no assurance that such additional funding would be available to the Company on acceptable terms, or at all.

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 and new seat. We have received prototypes of the Grunt EVO in the first quarter of 2023 and expect to begin sales in the second quarter of 2023.

The 2024 Grunt EVO has replaced the Grunt and has a belt drive rather than a chain drive as well as an updated rear suspension. We began selling the Grunt EVO in the third quarter of 2023. We began taking pre-orders for an E-Bike, the Brat, in September 2022 and shipments to customers began in the fourth quarter of 2022.

Product development expenses were $10,465,186 for the year ended December 31, 2021 and were primarily related to expenses associated with employee payroll costs of $2,048,561, stock-based compensation of $544,916 for share-based awards granted to employees and consultants, professional fees of $1,004,242 for product design and $303,647 for employee recruitment, prototype parts and tooling costs of $5,712,533, facilities cost of $331,703 and software fees, small equipment, tools and shop supplies of $222,497.

Product development expenses were $7,868,985 for the year ended December 31, 2023 and were primarily related to expenses associated with employee payroll costs of $1,772,836, stock-based compensation of $837,271 for share-based awards granted to employees and consultants, professional fees of $298,713 for consultants assisting with product design and programming, prototype vehicles and parts costs of $3,662,908, testing costs of $240,472 to complete testing of vehicles including any required regulatory tests, $198,224 for supplies and software and facilities costs of $192,998.

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.

Due to a delay in certain parts from third party vendors, we expect delivery to customers to begin in the first quarter of 2024. The Stag is being manufactured by a third party and incorporates electrification units, which include batteries, drive units and control modules provided by General Motors.

We expect export sales to be executed with individual importers in each country that will buy containers of vehicles. 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.

Local dealers or the importer will provide warranty and repair services for vehicles purchased in their country. In October 2023, the Company made a decision to postpone expanding our dealer network in Canada for the foreseeable future and we have terminated the employment of our Canadian regional sales managers.

Removed

We expect 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.

Added

Dealers can order any of our available products provided they are current on their accounts receivable and are within their established credit limit. We are offering dealers payment terms 30 to 90 days to make larger purchases of our vehicles.

Removed

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 and received Grunts from this manufacturer in January 2023. We also outsourced the manufacturing of the 2023 Grunt EVO to the same third-party manufacturer.

Added

We have entered into an accounts receivable factoring arrangement to allow the Company the ability to generate cash for working capital. We have agreements with third party financing companies to provide financing to qualified customers of each dealer.

Removed

In September 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.

Added

In December 2023 we notified Torrot that we were terminating our agreements due to continued lower than expected sales at significantly discounted pricing. In 2023, we wrote down the Volcon co-branded Torrot youth motorcycles by $2,674,352 to reduce their cost to the estimated net realizable value due to lower than expected sales.

Removed

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. 24 We began taking pre-orders for an eBike, the Brat, in September 2022 and shipments to customers began in the fourth quarter of 2022.

Added

We have agreed to give Torrot a total of 1,000 Volcon branded Torrot motorcycles originally purchased for $1.8 million, an upfront payment of $370,000 and an additional $1.7 million to be paid out at $100,000 over 17 months beginning in April 2024 in exchange for unfulfilled 2023 and 2024 unit purchases.

Removed

If they are unable to satisfy orders on a timely basis, our customers may cancel their orders.

Added

As of December 31, 2023, we have Volcon Youth inventory of approximately $239,935, after reducing these to the estimated net realizable value, of Volcon branded Torrot motorcycles and accessories which we intend to liquidate and we have agreed to give Torrot sales rights in the U.S., Canada and LATAM after June 30, 2024.

Removed

Costs include labor costs of $1,064,539 for employees and contractors performing parts purchasing, assembly and quality control testing of Grunts and stock-based compensation of $264,314 for share-based awards for employees. Part costs for Grunts sold during the period were $1,489,649. Facilities costs were $148,683 for our manufacturing facility and inventory warehousing costs. Shipping costs for inventory purchases were $1,143,442.

Added

Beginning in June 2022, we took non-binding pre-production orders which are cancelable prior to delivery. In the third quarter of 2023 we canceled all of the original pre-production orders due to the introduction of multiple models and new pricing. We began taking new pre-production orders for the newly introduced models in the third quarter of 2023.

Removed

In addition, the Company recorded a write-down of inventory of $5,450,007 to record inventory at its net realizable value. Beginning in the first quarter of 2023 we expect the cost of goods sold to increase as we expect to sell a higher quantity of Brats than in the fourth quarter of 2022.

Added

We also expect to introduce a higher performance, longer range UTV (to be named) but development of this vehicle has not yet begun and no timeline for its development and release has been determined. 27 In August 2022 we ceased manufacturing of the Grunt and we outsourced the manufacturing of the remaining Grunts and the 2024 Grunt EVO to the same third party manufacturer as the Stag.

Removed

Beginning in the second quarter of 2023 we expect cost of goods sold to increase further due to the expected sales of the Grunt EVO, Runt and Stag. Our cost per Grunt EVO and Runt is fixed in our contract with the third-party manufacturer .

Added

In November 2022, we finalized an agreement with the same third party that manufactures the Stag and Grunt EVO to manufacture the Runt LT. We received prototypes of the Runt LT in the first quarter of 2023. We are evaluating the market for the Runt LT and will determine whether to proceed with production in the first half of 2024.

Removed

We have identified suppliers who can deliver Grunt EVO parts at a lower cost than we have historically paid for the same or similar Grunt part, as many are interchangeable, and we have provided these vendors to our third-party manufacturer for their consideration in sourcing parts.

Added

In September and October 2023, we reduced our headcount in several departments to reduce costs and we continue to evaluate other cost reduction opportunities.

Removed

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 cost per unit and we may not be able to increase the price we sell each unit to our customers which could negatively impact our expected margin.

Added

Cost of goods sold Cost of goods sold for the year ended December 31, 2023 were $11,391,040, including payroll costs of $1,200,098 and stock-based compensation of $211,981 for employees performing warehouse and logistics management and quality control testing. Product costs for Brats, Grunt EVOs, and Volcon Youth motorcycles sold during the period were $1,674,987, $711,807 and $3,236,773, respectively.

Removed

We expect sales and marketing expenses to increase as we expand our U.S. dealer and international distributor networks and promote a broader range of our products. We also expect sales expenses to increase as we begin developing our Canadian dealer network.

Added

We recorded a write down of $2,674,352 for Volcon Youth motorcycles to reduce their costs to the expected net realizable value. We also recorded an expense of $2,070,000 for the termination of the Torrot agreement. We recorded an expense of $450,282 related to fees paid to cancel purchase orders to reduce raw material quantities.

Removed

Added

The Company also recorded an expense of $1,401,490 to write off inventory contributed to our third party manufacturer of the Grunt EVO in return for a credit that would be provided for each unit purchased up to 900 units. Facilities costs for the year ended December 31, 2023 were $509,360 for our warehouse facility and third party warehousing costs .

Removed

General and administrative expenses were $15,783,409 for the year ended December 31, 2021 and were primarily related to expenses associated with employee payroll costs of $679,147, stock-based compensation of $13,504,435 (consisting of $13,031,989 due to warrants issued to our founders in March 2021 and $472,446 due to share-based awards granted to employees and consultants), professional fees of $804,703, including legal fees of $187,040, tax and accounting fees of $284,290, recruiting fees of $216,677 and IT consulting, outsourcing and other fees of $116,696 and insurance costs of $402,994.

Added

Accrued warranty costs were $205,069 offset by a reversal of the accrued warranty liability in the amount o f $472,978 for th e Grunt where the one year warranty for defects had expired and claims were not as high as estimated.

Removed

Product Development Expense Product development expenses relate to development of our products and process to manufacture these products.

Added

Facilities costs for the year ended December 31, 2022 were $585,114 for our manufacturing facility and inventory warehousing costs.

Removed

Prototype costs, especially for the Stag, will be significant as 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. 27 Interest and Other Expenses, net Interest and other expenses, net for the year ended December 31, 2022 were $2,171,780.

Added

Sales and marketing expenses were $7,405,705 for the year ended December 31, 2023 and were primarily related to expenses associated with promoting our products and brand of $2,889,421, employee payroll costs of $2,789,652, stock-based compensation of $693,559 for share-based awards granted to employees and consultants, and travel costs of $294,323 primarily related to costs incurred for travel to build our dealer and distributor network and to attend events to promote our products.

Removed

Interest and other expense for the year ended December 31, 2021, primarily relates to interest on our notes payable used to purchase two vehicles and interest paid on the promissory notes issued in September 2021 and repaid in October 2021 with the proceeds from our initial public offering plus accretion of the discount on the issuance of the promissory notes.

Added

Facilities costs were $168,000. Bad debt expense was $105,687 and professional fees in the amount of $201,125, mainly related to legal fees in the amount of $74,090 related to entering into international distribution agreements and sales consultant fees in the amount of $73,132.

Removed

Cash used in operating activities includes increases in inventory and prepaid inventory totaling $8.2 million as we made payments and deposits to purchase raw materials to begin production of the Grunt in 2021 for delivery to customers, cash provided by customer deposits of $2.2 million and an increase in accounts payable of $1.4 million.

Added

We also expect sales expenses to increase as we begin expanding our international distributors and selling commissions for increased sales of Grunt EVOs and the Stag offset by overall lower expenses as we seek to reduce costs. Product Development Expense Product development expenses relate to development of our products and process to manufacture these products.

Removed

Net cash provided by financing activities was $30.0 million for the year ended December 31, 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.

Added

We expect 2024 product development costs related to employee costs to remain consistent with 2023. We expect costs to decrease for design and development costs and costs related to prototype costs for the current version of the Stag since the Stag is essentially ready for production in early 2024.

Removed

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.

Added

We expect design and development costs to increase for development of other versions of our UTV lineup being considered for future release.

Removed

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.

Added

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. 30 For the year ended December 31, 2023, general and administrative expenses were $6,388,007 and were primarily related to expenses associated with employee payroll costs of $1,613,575, stock-based compensation of $885,113 for share-based awards granted to employees, professional fees of $1,024,774 (including legal fees of $522,334, tax and audit fees of $326,702 and recruiting fees of $50,297), software costs were $444,318, insurance costs of $1,465,092, facilities costs of $249,074, which includes $85,756 of lease termination costs, annual and special stockholder meeting costs of $227,439 and board compensation expense of $117,000.

Removed

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.

Added

Interest and Other Expenses, net Interest and other income/expenses for the year ended December 31, 2023 was $15,278,462. A loss on extinguishment of the Convertible Notes of $22,296,988 was recognized in the year ended December 31, 2023 (see Note 6 to the consolidated financial statements).

Removed

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.

Added

Non-cash interest expense of $4,969,590 was recognized for the amortization of debt issuance costs and accretion of principal on the Convertible Notes issued in August 2022 prior to extinguishment of the Convertible Notes and for the May 2023 Notes.

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Top changes in Empery Digital Inc.'s 2023 10-K

Item 1. Business

Item 2. Properties

Item 3. Legal Proceedings

Item 5. Market for Registrant's Common Equity

Item 7. Management's Discussion & Analysis

Other EMPD 10-K year-over-year comparisons