Empery Digital Inc.: Form 10-Q for the period ended Mar 31, 2025

The following discussion and analysis is intended as a review of significant factors affecting the Company’s financial condition and results of operations for the periods indicated. This discussion and analysis should be read in conjunction with the financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and the Company’s Annual Report on Form 10-K, which contains audited financial statements of the Company as of and for the year ended December 31, 2024, previously filed with the Securities and Exchange Commission. Results for the three months ended March 31, 2025 are not necessarily indicative of results for the year ending December 31, 2025 or any future period.

Special Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q, together with other statements and information publicly disseminated by the Company, contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 and include this statement for purposes of complying with these safe harbor provisions.

In addition, from time to time, we or our representatives may make forward-looking statements orally or in writing. We base these forward-looking statements on our expectations and projections about future events, which we derive from the information currently available to us. Such forward-looking statements relate to future events or our future performance, including: our financial performance and projections; our growth in revenue and earnings; our product development and production releases; and our business prospects and opportunities. You can identify forward-looking statements by those that are not historical in nature, particularly those that use terminology such as “may,” “should,” “expects,” “anticipates,” “contemplates,” “estimates,” “believes,” “plans,” “projected,” “predicts,” “potential,” or “hopes” or the negative of these or similar terms. In evaluating these forward-looking statements, you should consider various factors, including: our ability to change the direction of the Company; our ability to keep pace with new technology and changing market needs; and the competitive environment of our business. These and other factors may cause our actual results to differ materially from any forward-looking statement. Forward-looking statements are only predictions. The forward-looking events discussed in this document and other statements made from time to time by us or our representatives, may not occur, and actual events and results may differ materially and are subject to risks, uncertainties and assumptions about us. We are not obligated to publicly update or revise any forward-looking statement, whether as a result of uncertainties and assumptions, the forward-looking events discussed in this document and other statements made from time to time by us or our representatives might not occur.

While we believe we have identified material risks, these risks and uncertainties are not exhaustive. Other sections of this Form 10-Q describe additional factors that could adversely impact our business and financial performance. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time, and it is not possible to predict all risks and uncertainties, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.

Although we believe the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, level of activity, performance or achievements. Moreover, neither we nor any other person assumes responsibility for the accuracy or completeness of any of these forward-looking statements. You should not rely upon forward-looking statements as predictions of future events. We are under no duty to update any of these forward-looking statements after the date of this Form 10-Q to conform our prior statements to actual results or revised expectations, and we do not intend to do so.

Forward-looking statements include, but are not limited to, statements about:

• our ability to maintain the listing of our common stock on the Nasdaq Stock Market;
• our ability to generate revenues from sales, generate cash from operations, or obtain additional funding to market our vehicles and develop new products;
• our ability to successfully implement and effectively manage our outsourced manufacturing, design and development model and achieve any anticipated benefits;
• the ability of third party manufacturers to produce our vehicles in accordance with our design and quality specifications, with sufficient scale to satisfy customers and within a reasonable cost;
• anticipated timing for the manufacture, design, production, shipping and launch of our vehicles;
• the inability of our suppliers to deliver the necessary components for our vehicles at prices and volumes acceptable to our third party manufacturers;
• our ability to establish a network of dealers and international distributors to sell and service our vehicles on the timeline we expect;
• whether our vehicles will perform as expected;
• our facing product warranty claims or product recalls;
• our facing adverse determinations in significant product liability claims;
• customer adoption of electric vehicles;
• the development of alternative technology that adversely affects our business;
• increased government regulation of our industry;
• tariffs, including future changes and modifications to any tariffs, and currency exchange rates; and
• the conflict with Russia and Ukraine and the potential adverse effect it may have on the availability of materials used in the manufacturing of batteries for our vehicles.

Overview

We are an all-electric, off-road powersports vehicle company selling Volcon electric two-wheeled E-Bikes and motorcycles, utility terrain vehicles, or UTVs, also known as side-by-sides, and golf carts, along with a line of upgrades and accessories. In January 2025, we also entered into a distribution agreement with a golf cart manufacturer, Super Sonic Company Ltd. (“Super Sonic”) located in Vietnam, and a subsidiary of Odes Industry, to supply golf carts to other companies in the United States who sell golf carts.

Two-Wheeled Products

We began selling the Grunt in September 2021 and the Grunt EVO replaced the Grunt in September 2023. Due to the manufacturing cost of the Grunt EVO, we terminated the manufacturing contract for it in December 2024. As of March 31, 2025, we have sold all of the remaining Grunt EVO units.

Beginning in the second quarter of 2024, we began evaluating other potential electric motorcycle offerings. We are determining what features and specifications would be included for new offerings including considering a street legal version that would be dual purpose as an on-road/off-road motorcycle (not highway legal). We have identified one new model which we are working on developing with a third party manufacturer. We received prototypes in February 2025 and we are testing them to evaluate the feasibility to produce and sell them. Provided testing is successful and whether the product cost, including tariffs, allow for us to sell this product, we expect to start selling this product in the second half of 2025.

In the fourth quarter of 2022, we began selling an E-Bike, the Brat which is manufactured by a third party. The Brat is a class 2 E-Bike and can be used on-road or off-road.

We will continue to evaluate other potential two-wheel product offerings throughout 2025.

Utility Terrain Vehicles (UTVs)

Beginning in the second quarter of 2024, the Company began discussions with various third party manufacturers of electric UTVs to identify models that we could purchase. These models would be primarily used for utility purposes, have two or three passenger options, a dump bed or flatbed for hauling cargo, with speeds up to 30 miles per hour. These models may also include an enclosed cab with optional air conditioning.

During 2024, we signed an agreement with a manufacturer to distribute one of these utility UTV models, the VLCN HF1 in North America for five years, which includes a royalty agreement with the manufacturer for them to distribute the vehicle outside of North America. Royalties would commence in the third year of this agreement.

We also signed another agreement with Super Sonic to distribute other light UTV models, the VLCN MN1 in the United States. The VLCN MN1 has two models, the MN1 Adventurer, a golf cart style product, which has four seats with a fold down rear seat to accommodate light cargo and the MN1 Tradesman which has two seats with a dump bed for utility purposes.

Since both the MN1 and HF1 vehicles are manufactured outside of the U.S. we are subject to potential tariffs that could significantly impact our cost to sell these vehicles in the U.S. We are currently evaluating options to sell these vehicles in countries outside the U.S. through distributors.

Distribution and Supplier Agreements

Exclusive Distribution Agreement

In January 2025, we signed an exclusive distribution agreement (the “Distribution Agreement”) with the manufacturer of the MN1s to distribute their golf carts in the United States and its territories. Super Sonic appointed us to act as their exclusive distributor of certain of their golf cart products (the “Products”), in the U.S. Super Sonic agreed to recommend us as the sole provider for all Products to all their customers in the U.S. Super Sonic has the right to sell non-Volcon branded Products to other customers and shall pay 5% of the order price to us. Before the end of June 2025, we agreed to provide a procurement plan, and if we fail to meet the minimum purchase requirement described in the procurement plan for two consecutive months, Super Sonic shall have the right to immediately terminate the Distribution Agreement. During the term of the Distribution Agreement, to the extent we sell any Volcon-branded products (the “Volcon Products”) that are similar to the Products, we agreed to provide Super Sonic with a right of first refusal to manufacture the Volcon Products. We may be required to issue our common stock, warrants to purchase our common stock and the right to appoint a director to our board of directors if certain golf cart sales volumes are attained.

Supply Agreement

On February 24, 2025, we entered into a supply agreement with Venom-EV LLC (“Venom”) to supply Venom with certain golf carts. This agreement was amended and restated on April 25, 2025 (the “Supply Agreement”). The Supply Agreement allows Venom to purchase up to $2 million of golf carts with payment terms of the earlier of 100 days from the date the golf carts are shipped from the manufacturer’s facility or upon sale to Venom’s dealers or to consumers. These golf carts will be purchased through a manufacturer specified in the Supply Agreement and we will receive consideration of the cost of the golf carts plus a five percent margin. We received an initial order from Venom for $2.0 million golf carts and paid a deposit to the manufacturer of $0.6 million on May 2, 2025. The remaining $1.4 million will be paid as golf carts are completed and ready for shipment which is expected to be in the second quarter of 2025.

Customers

Dealers

We sell our products through powersports dealers, bicycle retailers, and golf cart dealers. As of May 5, 2025, we have 129 active powersports dealers, 20 active bicycle dealers and 14 golf cart dealers. For dealers who qualify for credit, we offer dealers payment terms of 30 to 90 days to make larger purchases of our vehicles provided their order is within their established credit limit. For dealers that do not qualify for credit, they must pay for their order prior to shipment. Powersports dealers can order any of our available products, bicycle retailers can order the Brat, and golf cart dealers can order either version of the MN1. We have entered into an accounts receivable factoring arrangement to allow us the ability to generate cash for working capital. We have agreements with third party financing companies to provide financing to qualified customers of dealers or customers purchasing from our website. There is no recourse to us or the dealer if the customer defaults on the financing agreement with the third party.

Consumers

Consumers can purchase the Brat from our website and have it delivered to a location of their choosing in the continental U.S.

International Distributors

We also sell our two-wheel products internationally through importers. Each importer buys vehicles by the container and sells vehicles and accessories to local dealers or directly to consumers. Payment for orders is required in advance of shipment, except in a few limited instances. Local dealers or the importer will provide warranty and repair services for vehicles purchased in their country. As of May 5, 2025, we have signed agreements with six importers in Latin America, one importer for the Caribbean Region, collectively referred to herein as the LATAM importers, and one importer each in New Zealand, Australia and Japan to sell our two-wheel vehicles and accessories in their assigned countries/markets. In 2025, we expect to expand our global sales of our vehicles and accessories beyond our current distributor base and offer our four-wheel products to these customers.

Manufacturers

We outsource the manufacturing of all of our vehicles and accessories to third party manufacturers and suppliers. The estimated fulfillment of all two-wheeled and UTV orders we have received, or will receive, assumes that our third party manufacturers can successfully meet our order quantities and deadlines. We have experienced delays due to our third party manufacturers being unable to timely meet our order deadlines, and there is no assurance that we will not experience delays in the future until such time as we are able to source products from multiple manufacturers or from larger, more established manufacturers. If they are unable to satisfy orders on a timely basis, our customers may cancel their orders. Also, due to the limited number of third party manufacturers who manufacture our products, if any one of them experiences financial hardship and cannot manufacture our products, our customers may cancel their orders which will harm our sales. All of our products are manufactured internationally. Due to the change in tariffs announced in April 2025, the cost of our products will increase and could increase further if additional changes in import laws or tariffs occur. We could also experience delays in receiving shipments of our products if there are delays in getting carriers to ship our products or delays at the port of entry.

Results of Operations

The following financial information is for the three months ended March 31, 2025 and 2024.

Revenue

Revenue for the three months ended March 31, 2025 was $736,049 which represents sales of Grunt EVOs of $304,905, Brats of $99,458, HF1s of $142,121, MN1-Adventurers of $91,717, MN1-Tradesman of $33,799, and accessories and parts of $24,345.

Revenue for the three months ended March 31, 2024 was $1,033,548 which represents sales of Grunt EVOs of $329,617, Stag of $39,999, Brats of $532,806, Volcon Youth of $93,757, and accessories and parts of $34,103.

Cost of Goods Sold

Cost of goods sold for the three months ended March 31, 2025 was $781,383, including payroll costs of $86,254 for employees performing product fulfillment, logistics management, and service and warranty and facilities costs of $123,863. Product costs were $224,281 for Grunt EVOs, $119,789 for Brats, $126,101 for HF1s and $131,437 for MN1s.

Cost of goods sold for the three months ended March 31, 2024 was $1,621,580, including payroll costs of $94,320, which was partially offset by a stock-based compensation benefit of $10,641, for employees performing product fulfillment, logistics management, and service and warranty. Product costs were $343,981 for Grunt EVOs, $228,893 for the Stag which included costs for the one Stag sold in the amount of $43,412 and $10,429 for customized inventory related to the sale of the Stag, $582,550 for Brats and $42,311 for Volcon Youth. Also Included in the Stag product costs is $95,548 of expense related to accruing a loss on sales of units to a customer who initially ordered models that we will not be producing. The Company offered to substitute additional units of the Stag LTD at no additional charge to replace those units. Also relating to Stag costs is $52,503 in inbound freight and tariffs for Stag raw materials. Facilities costs for the three months ended March 31, 2024 were $105,950 for our warehouse facility and third party warehousing costs.

For the remainder of 2025 we expect revenue to increase due to the expected increase in sales of our products. We expect product costs to increase due to increased sales as well as increased tariffs since our products are manufactured outside the U.S. but it is difficult to predict in the current political environment. Product cost savings may be realized if the third party manufacturer for our vehicles can source or manufacture parts at a lower cost.

Sales and Marketing Expense

Sales and marketing expenses relate to costs to increase exposure and awareness for our products and developing our network of U.S. dealers and international distributors.

Sales and marketing expenses were $510,957 for the three months ended March 31, 2025 and were primarily related to expenses associated with promoting our products and brand of $101,517 employee payroll costs of $198,319, and professional fees of $72,551 for fees paid to a third party distributor, third- party sales consultants and legal fees.

Sales and marketing expenses were $760,564 for the three months ended March 31, 2024 and were primarily related to expenses associated with promoting our products and brand of $215,429, employee payroll costs of $453,191, including $112,500 for severance costs for our former chief marketing officer (“CMO”), which was partially offset by stock-based compensation benefit of $55,071 for cancellation of unvested share based awards to the CMO and other marketing employees whose positions were eliminated in the period and the CMO’s unvested share based awards.

For the remainder of 2025 we expect sales expenses to increase as we begin expanding our international distributors and selling commissions for increased sales of our products. We expect marketing expenses to increase to promote the MN1 and HF1 products and to launch the two-wheel motorcycle that will replace the Grunt EVO.

Product Development Expense

Product development expenses relate to the development and testing of our products and process to manufacture these products.

Product development expenses were $388,523 for the three months ended March 31, 2025 and were primarily related to expenses associated with employee payroll costs of $249,354, and facilities costs of $56,782.

Product development expenses were $814,945 for the three months ended March 31, 2024 and were primarily related to expenses associated with employee payroll costs of $436,902, stock-based compensation of $42,604 for share-based awards granted to employees, facilities costs of $63,856, travel costs primarily related to beginning production of Stag of $53,326 and prototype costs of $91,925.

For the remainder of 2025 we expect product development costs related to employee costs to remain consistent with the quarter ended March 31, 2025 and we expect an increase in prototype expenses as we develop the dual sport motorcycle.

General and Administrative Expense

General and administrative expenses relate to costs for our finance, accounting and administrative functions to support the development, manufacturing and sales of our products.

General and administrative expenses were $1,561,657 for the three months ended March 31, 2025, and were primarily related to expenses associated with employee payroll costs of $550,402, professional fees of $260,187 (including auditor fees of $77,250, legal fees of $58,697 and consulting fees of $124,240), software costs of $123,629, insurance costs of $450,388, and board compensation expense of $50,000.

General and administrative expenses were $2,080,794 for the three months ended March 31, 2024, and were primarily related to expenses associated with employee payroll costs of $579,363, stock-based compensation of $21,187 for share-based awards granted to employees, professional fees of $412,715 (including legal fees of $195,377, tax and accounting fees of $23,200 and audit fees of $146,925), software costs of $141,551, insurance costs of $662,927, and public company expense costs of $102,721.

For the remainder of 2025 we expect general and administrative expenses to remain consistent. Costs such as product liability insurance may increase due to the introduction of new products and increased sales.

Interest and Other Expenses

Interest and other income/expenses for the three months ended March 31, 2025 was insignificant.

Interest and other income/expenses for the three months ended March 31, 2024 was $21,803,709. Non-cash interest expense of $314,838 was recognized for the amortization of debt issuance costs and accretion of principal on the May 2023 Notes through the date these notes were exchanged for Preferred Stock. We recorded a loss on the conversion of some of these notes of $333,544 and a loss from the exchange of these notes for Preferred Stock of $1,314,064. We recorded a loss on the change in the estimated fair value of the Series A and Series B Warrant liabilities of $20,004,342 which was partially offset by a gain of $165,355 from the exercise of some of the Series B Warrants.

Net Loss

Net loss for the three months ended March 31, 2025 was $2,460,430. Net loss for the three months ended March 31, 2024, was $26,048,044.

Liquidity and Capital Resources

On March 31, 2025, we had cash, cash equivalents and restricted cash of $17.7 million, including $0.1 million of restricted cash, and we had working capital of $16.4 million. Since inception we have funded our operations from proceeds from debt and equity sales.

Cash used in operating activities

Net cash used in operating activities was $3.6 million for the three months ended March 31, 2025 and includes all of our operating costs, except non-cash costs of depreciation and amortization, loss on change in derivative financial liabilities and stock-based compensation, all of which were insignificant for the period. Significant uses/contributions of cash used in operating activities includes a decrease of $0.4 million in inventory and inventory deposits, an increase of $0.4 million in prepaid assets, a decrease of $0.2 million in accounts payable, and a decrease of $0.7 million in accrued liabilities primarily due to payments on vendor settlements, $0.1 million used to pay our lease liabilities and $0.2 million for fulfillment of sales where customers had previously placed deposits.

Net cash used in operating activities was $4.5 million for the three months ended March 31, 2024 and includes all of our operating costs except depreciation and amortization of $0.1 million, non-cash interest expense for the amortization of debt issuance costs and accretion of principal on the May 2023 Notes of $0.3 million, loss on change in derivative financial liabilities of $20.0 million, losses on conversion and exchange of Convertible Notes of $1.6 million and $0.2 million from the loss on disposal of fixed assets. Cash used in operating activities includes an increase in accounts receivable of $0.1 million due to sales to our U.S. dealers, an increase of $0.5 million in prepaid inventory deposits primarily for purchases of Stag raw materials, a decrease of $0.5 million in accounts payable, and an increase of $0.3 million in accrued liabilities. As of March 31, 2024, we have a decrease of $0.3 million in customer deposits, primarily due to orders being fulfilled for two of our Latin American distributors for shipments of Brats and Grunt EVOs paid for previously.

Cash used in investing activities

Net cash used in investing activities was $0.2 million for the three months ended March 31, 2025, primarily consisting of purchases of equipment and tooling.

Net cash used in investing activities was $0.1 million for the three months ended March 31, 2024, primarily consisting of $0.1 million of purchases of equipment and tooling.

Cash provided by financing activities

Cash provided by financing activities for the three months ended March 31, 2025, was $19.1 million and was primarily related to proceeds of $8.8 million from the sale of our common stock from the At the Market offering, proceeds of $10.7 million from the sale of common stock units and prefunded warrant units, partially offset by share repurchases of $0.4 million.

Cash provided by financing activities for the three months ended March 31, 2024, was $0.1 million and was primarily related to proceeds from the exercise of Series B Warrants.

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 March 31, 2025, we had incurred an accumulated deficit of $168.8 million since inception.

Management anticipates that our cash and cash equivalents on hand as of March 31, 2025 will not be sufficient to fund planned operations beyond one year from the date of the issuance of the financial statements as of and for the three months ended March 31, 2025. We do not have any current commitments for future financing, and there can be no assurance that such additional funding would be available to the Company on acceptable terms, or at all. If we are unable to raise additional financing, we will be required to modify or curtail our operations. These factors raise substantial doubt regarding our ability to continue as a going concern.

JOBS Act Accounting Election

The recently enacted JOBS Act provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933, as amended, for complying with new or revised accounting standards. In other words, an “emerging growth company” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have irrevocably elected not to avail ourselves of this extended transition period and, as a result, we will adopt new or revised accounting standards on the relevant dates on which adoption of such standards is required for other public companies.

We have implemented all new accounting pronouncements that are in effect and may impact our financial statements and we do not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on our financial position or results of operations.

Critical Accounting Policies

None.

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.

Evaluation of Disclosure Controls and Procedures

Our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)) are designed to ensure that information required to be disclosed by us in reports we file or submit under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the appropriate time periods, and that such information is accumulated and communicated to our Chief Executive Officer, who serves as our principal executive officer, and Chief Financial Officer, who serves as our principal financial officer, as appropriate, to allow timely discussions regarding required disclosure. We, under the supervision of and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, have evaluated the effectiveness of our disclosure controls and procedures.

Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that the design and operation of our disclosure controls and procedures were not effective as of March 31, 2025 to provide assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC, and that such information is accumulated and communicated to management as appropriate, to allow timely decisions regarding disclosures as we have previously missed filing certain forms timely and we have not implemented and tested controls and procedures to conclude that we have remediated this deficiency. Notwithstanding this conclusion, we believe that our unaudited consolidated financial statements contained in this Quarterly Report fairly present our financial position, results of operations and cash flows for the periods covered thereby in all material respects. Management is working to identify corrective actions for the weakness and will periodically re-evaluate the need to add personnel and implement improved review procedures.

Changes in Internal Control over Financial Reporting

There were no changes to our internal control over financial reporting during the three months ended March 31, 2025, that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

Except as set forth below, there have been no material changes to the risk factors included in the Form 10-K filed with the SEC on March 31, 2025, which is accessible on the SEC’s website at www.sec.gov (http://www.sec.gov).

We have in the past failed to maintain compliance with all applicable continued listing requirements of the Nasdaq Capital Market, and if we fail to maintain compliance with all applicable continued listing requirements of the Nasdaq Capital Market in the future, we will not be afforded traditional cure periods under Nasdaq rules and our common stock will be delisted from Nasdaq, which could have an adverse impact on the liquidity and market price of our common stock.

Since March 28, 2025 our common stock closing bid price has been below $1.00. If our common stock closing bid price continues to be below $1.00 for 30 consecutive trading days, we will be out of compliance with Nasdaq’s Listing Rule 5550(a)(2). Until July 17, 2025, we are subject to a Nasdaq Discretionary Panel Monitor and due to this Panel Monitor, in the event that we have another deficiency or deficiencies, we will immediately go back into Nasdaq’s hearings process. In the event that the Nasdaq Hearings Department does not grant us an extension to demonstrate compliance our common stock would be delisted from Nasdaq and trading of our common stock could be conducted only in the over-the-counter market or on an electronic bulletin board established for unlisted securities such as the Pink Sheets or the OTC Bulletin Board. In such an event, it could become more difficult to dispose of, or obtain accurate price quotations for, our common stock, and there would likely also be a reduction in our coverage by securities analysts and the news media, which could cause the price of our common stock to decline further. Also, it may be difficult for us to raise additional capital if we are not listed on a major exchange.

The new Administration has introduced tariff increases that apply to all our products which are sourced from Asian suppliers.

On April 2, 2025, the U.S. imposed tariffs on goods imported from certain countries including China and Vietnam, where Volcon’s vehicles are manufactured, including a 10% base tariff for all imports. On April 9, 2025, the tariffs for China were increased while the tariffs for Vietnam were deferred for 90 days. Further adjustments to these tariffs could occur. These tariffs will significantly increase the cost of the Company’s vehicles and parts. The Company is currently evaluating options to import parts and assemble vehicles in the U.S. or continue to import vehicles and pay the higher tariffs and increase the selling price of vehicles.

In the event a mutual trade agreement is not reached between the U.S. and these countries in the short-term and we find it necessary to begin purchasing a significant level of our inventory components from China and Vietnam at post-tariff prices, we would be faced with a decision as to whether we should attempt to pass along such tariff increases to our customers through higher prices for our products or absorbing them internally, or some combination of those two alternatives. Either circumstance would likely materially adversely affect our sales and/or our profitability.