8-K: Volcon Enters Supplier Agreement with Venom-EV for Gold Cart Distribution

Volcon, Inc. will act as Venom-EV's supply representative for gold carts, with potential stock issuance tied to unit purchases.

Summary

• Volcon, Inc. has entered into a Supplier Agreement with Venom-EV, effective February 25, 2025.
• Volcon will act as Venom's supply representative for Venom's gold carts.
• Volcon will purchase up to $3.0 million in Products from the manufacturer.
• Payment terms are net 90 days from delivery to Venom.
• Venom will pay Volcon 3% of the order price upon repayment for the Products.
• Venom is responsible for shipping costs, tariffs, duties, fees, product liability claims, and documentation.
• At the end of each quarter, Volcon will issue Venom shares of common stock based on units purchased: 1% of Volcon's outstanding shares for each 1,000 units purchased.
• Share issuance ceases on June 30, 2026, or upon the sale of 5,000 units, whichever comes first.
• Shareholder approval may be required for share issuance.
• Failure to issue shares (excluding lack of shareholder approval) entitles Venom to damages and termination of the agreement.
• The agreement has a one-year term, with potential for one-year extensions.
• Venom placed an initial order for 500 vehicles for $2.36 million.
• The agreement can be terminated for breach of contract or insolvency.
• Venom grants Volcon a security interest in its assets to secure payment obligations.
• Volcon's Board of Directors approved committee appointments on February 21, 2025.

Sentiment

Score: 7

Explanation: The agreement presents a positive opportunity for Volcon to generate revenue and expand its distribution network. However, the potential share dilution and reliance on Venom's performance introduce some risk.

Positives

• Volcon secures a supplier agreement with Venom-EV, potentially generating revenue through product purchases and a 3% commission.
• The agreement includes a potential equity component, aligning interests between Volcon and Venom.
• Venom is responsible for key costs and liabilities, including shipping, tariffs, product liability, and warranty.
• The initial purchase order of $2.36 million provides immediate revenue.
• The agreement has the potential for annual extensions.

Negatives

• Volcon may need to issue shares to Venom, potentially diluting existing shareholders.
• The agreement is subject to shareholder approval for share issuance, creating uncertainty.
• Failure to issue shares (excluding lack of shareholder approval) results in damages and potential termination.
• Volcon is acting as an intermediary and is reliant on Venom's sales success.
• The agreement is only for one year initially.

Risks

• The agreement is subject to termination for breach of contract or insolvency of either party.
• Shareholder approval for share issuance may not be obtained.
• Venom's sales performance may be lower than expected, impacting Volcon's revenue.
• The agreement's renewal is not guaranteed.
• Volcon's reliance on a single manufacturer (Whanlong) could create supply chain vulnerabilities.

Future Outlook

The agreement has a one-year term with the option to extend for additional one-year periods, contingent on performance and mutual agreement.

Industry Context

This agreement reflects a trend of companies outsourcing supply chain management and distribution to focus on core competencies. The electric vehicle market is competitive, and strategic partnerships are crucial for market penetration.

Comparison to Industry Standards

• Comparable companies such as Polaris and BRP often utilize dealer networks and distribution agreements to expand their market reach.
• The 3% commission is within the typical range for distribution agreements in the automotive industry.
• The potential share issuance is a unique aspect of this agreement, potentially aligning the interests of Volcon and Venom more closely than a standard distribution agreement.
• The 90-day payment terms are relatively standard in the industry.

Management Changes

Stakeholder Impact

• Shareholders may experience potential dilution from share issuance.
• Employees may benefit from increased sales and revenue.
• Customers will have access to Venom's gold carts through Volcon's distribution network.
• Suppliers may see increased demand for components and materials.
• Creditors' risk may increase due to potential share dilution.

Next Steps

• Volcon will purchase Products from the manufacturer based on Venom's purchase orders.
• Volcon will seek shareholder approval for share issuance, if required.
• Venom will market and sell the Products to its customers.
• Volcon will monitor Venom's sales performance and assess the potential for extending the agreement.

Key Dates