UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the quarterly period ended
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ___________ to __________
Commission
file number:
(Exact name of registrant as specified in its charter)
(State
or other jurisdiction of incorporation or organization) |
(I.R.S.
Employer Identification No.) |
(Address of principal executive offices) | (Zip Code) |
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each Class | Trading Symbol(s) | Name of each exchange on which registered | ||
The
|
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | Accelerated filer | ☐ |
☒ | Smaller reporting company | ||
Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐
As of November 12, 2021, the registrant had shares of common stock outstanding.
AYRO, Inc.
Quarter Ended September 30, 2021
Table of Contents
i |
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
AYRO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
September 30, | December 31, | |||||||
2021 | 2020 | |||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash | $ | $ | ||||||
Accounts receivable, net | ||||||||
Inventory, net | ||||||||
Prepaid expenses and other current assets | ||||||||
Total current assets | ||||||||
Property and equipment, net | ||||||||
Intangible assets, net | ||||||||
Operating lease – right-of-use asset | ||||||||
Deposits and other assets | ||||||||
Total assets | $ | $ | ||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | $ | ||||||
Accrued expenses | ||||||||
Contract liability | ||||||||
Current portion long-term debt, net | ||||||||
Current portion lease obligation – operating lease | ||||||||
Total current liabilities | ||||||||
Long-term debt, net | ||||||||
Lease obligation - operating lease, net of current portion | ||||||||
Total liabilities | ||||||||
Commitments and contingencies | ||||||||
Stockholders’ equity: | ||||||||
Preferred Stock, (authorized – | shares)||||||||
Convertible Preferred Stock Series H, ($ | par value; authorized – shares; issued and outstanding – shares as of September 30, 2021 and December 31, 2020)||||||||
Convertible Preferred Stock Series H-3, ($ | par value; authorized – shares; issued and outstanding – shares as of September 30, 2021 and December 31, 2020)||||||||
Convertible Preferred Stock Series H-6, ($ | par value; authorized – shares; issued and outstanding – shares as of September 30, 2021 and December 31, 2020)||||||||
Common Stock, ($ | par value; authorized – shares; issued and outstanding – and shares, as of September 30, 2021 and December 31, 2020)||||||||
Additional paid-in capital | ||||||||
Accumulated deficit | ( | ) | ( | ) | ||||
Total stockholders’ equity | ||||||||
Total liabilities and stockholders’ equity | $ | $ |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
F-1 |
AYRO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
Revenue | $ | $ | $ | $ | ||||||||||||
Cost of goods sold | ||||||||||||||||
Gross profit (loss) | ( | ) | ( | ) | ||||||||||||
Operating expenses: | ||||||||||||||||
Research and development | ||||||||||||||||
Sales and marketing | ||||||||||||||||
General and administrative | ||||||||||||||||
Total operating expenses | ||||||||||||||||
Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
Other income (expense): | ||||||||||||||||
Other income, net | ||||||||||||||||
Interest expense | ( | ) | ( | ) | ( | ) | ||||||||||
Loss on extinguishment of debt | ( | ) | ( | ) | ||||||||||||
Other income (expense), net | ( | ) | ( | ) | ||||||||||||
Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
Deemed dividend on modification of Series H-5 warrants | ( | ) | ( | ) | ||||||||||||
Net loss Attributable to Common Stockholders | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
Net loss per share, basic and diluted | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
Basic and diluted weighted average Common Stock outstanding |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
F-2 |
AYRO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(UNAUDITED)
Series
H Preferred Stock | Series
H-3 Preferred Stock | Series
H-6 Preferred Stock | Common Stock | Additional Paid-in | Accumulated | |||||||||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Capital | (Deficit) | Total | ||||||||||||||||||||||||||||||||||
Balance, December 31, 2020 | $ | $ | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||||||||||||||||
Stock Based Compensation | ||||||||||||||||||||||||||||||||||||||||||||
Sale of common stock, net of fees | ||||||||||||||||||||||||||||||||||||||||||||
Exercise of Warrants | ||||||||||||||||||||||||||||||||||||||||||||
Exercise of Options | ||||||||||||||||||||||||||||||||||||||||||||
Net Loss | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||
Balance, March 31, 2021 | ( | ) | ||||||||||||||||||||||||||||||||||||||||||
Issuance of common stock for services | ||||||||||||||||||||||||||||||||||||||||||||
Stock Based Compensation | ||||||||||||||||||||||||||||||||||||||||||||
Exercise of Options | ||||||||||||||||||||||||||||||||||||||||||||
Restricted stock vesting | ( | ) | ||||||||||||||||||||||||||||||||||||||||||
Net Loss | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||
Balance, June 30, 2021 | ( | ) | ||||||||||||||||||||||||||||||||||||||||||
Stock Based Compensation | ||||||||||||||||||||||||||||||||||||||||||||
Exercise of Options | ||||||||||||||||||||||||||||||||||||||||||||
Restricted stock vesting | ( | ) | ||||||||||||||||||||||||||||||||||||||||||
Net Loss | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||
Balance, September 30, 2021 | $ | $ | $ | $ | $ | $ | ( | ) | $ |
Series
H Preferred Stock | Series
H-3 Preferred Stock | Series
H-6 Preferred Stock | AYRO Series
Seed Preferred Stock | Common Stock | Additional Paid-in | Accumulated | ||||||||||||||||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Capital | (Deficit) | Total | ||||||||||||||||||||||||||||||||||||||||
Balance, December 31, 2019 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||||||||||||||||||||||||||
Stock Based Compensation | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Net Loss | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||||
Balance, March 31, 2020 | $ | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||||||||||||
Conversion of AYRO Preferred Stock to common stock | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||||
Issuance of Series H Preferred Stock in connection with the 2020 Merger | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Issuance of Series H-3 Preferred Stock in connection with the 2020 Merger | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Issuance of Series H-6 Preferred Stock in connection with the 2020 Merger | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Issuance of Common Stock in connection with the 2020 Merger, net of fees | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Exchange of debt for common stock in connection with the 2020 Merger | - | |||||||||||||||||||||||||||||||||||||||||||||||||||
Issuance of common stock in connection with debt offering | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Sale of common stock, net of fees | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Exercise of warrants, net of fees | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock Based Compensation | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Net Loss | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||||
Balance, June 30, 2020 | $ | $ | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||||||||||||||||||||||||
Sale of common stock, net of fees | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Exercise of warrants, net of fees | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Conversion of Series H-6 Preferred Stock | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||||
Stock Based Compensation | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Vested Restricted Stock | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Deemed Dividend on modification of H-5 warrants | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||
Net Loss | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||||
Balance, September 30, 2020 | $ | $ | $ | $ | $ | $ | $ | ( | ) | $ |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
F-3 |
AYRO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended | ||||||||
September 30, | ||||||||
2021 | 2020 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
Net loss | $ | ( | ) | $ | ( | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Depreciation and amortization | ||||||||
Stock-based compensation | ||||||||
Amortization of debt discount | ||||||||
Loss on extinguishment of debt | ||||||||
Amortization of right-of-use asset | ||||||||
Provision for bad debt expense | ||||||||
Change in operating assets and liabilities: | ||||||||
Accounts receivable | ( | ) | ( | ) | ||||
Inventory | ( | ) | ( | ) | ||||
Prepaid expenses and other current assets | ( | ) | ( | ) | ||||
Deposits | ( | ) | ||||||
Accounts payable | ||||||||
Accrued expenses | ( | ) | ||||||
Contract liability | ( | ) | ||||||
Lease obligations - operating leases | ( | ) | ( | ) | ||||
Net cash used in operating activities | ( | ) | ( | ) | ||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
Purchase of property and equipment | ( | ) | ( | ) | ||||
Purchase of intangible assets | ( | ) | ( | ) | ||||
Proceeds from merger with ABC Merger Sub, Inc. | ||||||||
Net cash used in and provided by investing activities | ( | ) | ||||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
Proceeds from issuance debt | ||||||||
Repayments of debt | ( | ) | ( | ) | ||||
Proceeds from exercise of warrants | ||||||||
Proceeds from exercise of stock options | ||||||||
Proceeds from issuance of common stock, net of fees and expenses | ||||||||
Net cash provided by financing activities | ||||||||
Net change in cash | ||||||||
Cash, beginning of period | ||||||||
Cash, end of period | $ | $ | ||||||
Supplemental disclosure of cash and non-cash transactions: | ||||||||
Cash paid for interest | $ | $ | ||||||
Supplemental non-cash amounts of lease liabilities arising from obtaining right of use assets | $ | $ | ||||||
Conversion of debt to Common Stock | $ | $ | ||||||
Conversion of Preferred Stock to common stock | $ | $ | ||||||
Discount on debt from issuance of Common Stock and warrants | $ | $ | ||||||
Accrued offering costs | $ | $ | ||||||
Deemed dividend on modification of Series H-5 warrants | $ | $ | ||||||
Restricted Stock for service, vested not issued | $ | $ |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
F-4 |
AYRO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. ORGANIZATION AND NATURE OF OPERATIONS
AYRO, Inc. (“AYRO” or the “Company”), a Delaware corporation formerly known as DropCar, Inc. (“DropCar”), a corporation headquartered outside Austin, Texas, is the merger successor discussed below of AYRO Operating Company, Inc., which was formed under the laws of the State of Texas on May 17, 2016 as Austin PRT Vehicle, Inc. and subsequently changed its name to Austin EV, Inc. under an Amended and Restated Certificate of Formation filed with the State of Texas on March 9, 2017. On July 24, 2019, the Company changed its name to AYRO, Inc. and converted its corporate domicile to Delaware. The Company was founded on the basis of promoting resource sustainability. The Company, and its wholly-owned subsidiaries, are principally engaged in manufacturing and sales of environmentally-conscious, minimal-footprint electric vehicles. The all-electric vehicles are typically sold both directly and to dealers in the United States.
Merger
On
May 28, 2020, pursuant to the previously announced Agreement and Plan of Merger, dated December 19, 2019 (the “Merger Agreement”),
by and among AYRO, Inc., a Delaware corporation previously known as DropCar, Inc., ABC Merger Sub, Inc., a Delaware corporation and a
wholly owned subsidiary of the Company (“Merger Sub”), and AYRO Operating Company (“AYRO Operating”), a Delaware
corporation previously known as AYRO, Inc., Merger Sub was merged with and into AYRO Operating, with AYRO Operating continuing after
the merger as the surviving entity and a wholly owned subsidiary of the Company (the “Merger”). At the effective time of
the Merger, without any action on the part of any stockholder, each issued and outstanding share of AYRO Operating’s common stock,
par value $
The Merger was treated as a reverse recapitalization effected by a share exchange for financial accounting and reporting purposes because substantially all of DropCar, Inc.’s operations were disposed of as part of the consummation of the Merger and therefore no goodwill or other intangible assets were recorded by the Company as a result of the Merger. AYRO Operating was treated as the accounting acquirer as its stockholders controlled the Company after the Merger, even though DropCar, Inc. was the legal acquirer. As a result, the assets and liabilities and the historical operations that are reflected in our consolidated financial statements are those of AYRO Operating as if AYRO Operating had always been the reporting company.
F-5 |
On December 19, 2019, DropCar entered into an asset purchase agreement (the “Asset Purchase Agreement”) with DC Partners Acquisition, LLC (“DC Partners”), Spencer Richardson and David Newman, pursuant to which DropCar agreed to sell substantially all of the assets associated with its business of providing vehicle support, fleet logistics and concierge services for both consumers and the automotive industry to an entity controlled by Messrs. Richardson and Newman, the Company’s Chief Executive Officer and Chief Business Development Officer at the time, respectively. The aggregate purchase price for the purchased assets consisted of the cancellation of certain liabilities pursuant to those certain employment agreements by and between DropCar and each of Messrs. Richardson and Newman, plus the assumption of certain liabilities relating to, or arising out of, workers’ compensation claims that occurred prior to the closing date of the Asset Purchase Agreement.
Strategic Review
Following the hiring of its new Chief Executive Officer in the third quarter of 2021, the Company initiated a strategic review of its product development strategy, as it focuses on creating value within the electric vehicle, last-mile delivery, and smart payload markets. While completing the strategic review, the Company has paused all material research and development activity and expenditures, including expenses associated with its planned next generation three-wheeled vehicle.
This process may result in the Company deciding to modify or discontinue current or planned products, in reallocating time and resources among existing products, in exploring new products or in making other operational changes, including to the Company’s reliance on internal and external resources. It could also result in delays in the expected timing for the launch of new products, if the Company determines to continue their development. Any decisions on advancing, reprioritizing or eliminating any of the Company’s products will be based on an evaluation of a number of factors, including the Company’s assessment of internal and external resources, the potential market for such products, the costs and complexities of manufacturing, the potential of competing products, the likelihood of any challenges to its intellectual property, regardless of merit, the ongoing and potential effects of the COVID-19 or any future pandemics, and industry and market conditions generally, and will be subject to the approval of the strategic and budget committee of the board of directors.
NOTE 2. LIQUIDITY AND OTHER UNCERTAINTIES
Liquidity and Other Uncertainties
The
unaudited condensed consolidated financial statements have been prepared in conformity with generally accepted accounting principles
in the United States (“GAAP”), which contemplates continuation of the Company as a going concern. The Company is subject
to a number of risks similar to those of earlier stage commercial companies, including dependence on key individuals and products, the
difficulties inherent in the development of a commercial market, the potential need to obtain additional capital, competition from larger
companies, other technology companies and other technologies. The Company has a limited operating history and the sales and income potential
of its business and market are unproven. The Company incurred net losses of $
Since early 2020, when the World Health Organization declared the spread of the transmissible and pathogenic coronavirus a global pandemic, there have been business slowdowns and decreased demand for AYRO products. The outbreak of such a communicable disease has resulted in a widespread health crisis which has adversely affected general commercial activity and the economies and financial markets of many countries, including the United States. As the outbreak of the disease has continued through 2020 and into 2021, the measures taken by the governments of countries affected has adversely affected the Company’s business, financial condition, and results of operations. The pandemic had an adverse impact on AYRO’s sales and the demand for AYRO products in 2020 and in the first three quarters of 2021, resulting in sales that were less than expected through the first three quarters of 2021. AYRO expects the pandemic to continue to have an adverse impact on sales and demand for products throughout the remainder of 2021.
The Company relies on foreign suppliers, including Cenntro, its largest supplier, for a number of raw materials, instruments and technologies that the Company purchases. The Company’s success is dependent on the ability to import or transport such products from Cenntro and other overseas vendors in a timely and cost-effective manner. The Company relies heavily on third parties, including ocean carriers and truckers, in that process. The global shipping industry is experiencing ocean shipping disruptions, trucking shortages, increased ocean shipping rates and increased trucking and fuel costs, and the Company cannot predict when these disruptions will end.
F-6 |
There is currently a shortage of shipping capacity from China and other parts of Asia, and as a result, receipt of imported products may be disrupted or delayed. The shipping industry is also experiencing issues with port congestion and pandemic-related port closures and ship diversions. Labor disputes among freight carriers and at ports of entry are common, and The Company expects labor unrest and its effects on shipping products to be a challenge for it. A port worker strike, work slow-down or other transportation disruption in the port of Long Beach, California could significantly disrupt the Company’s business. The Company is currently experiencing such disruption at the port due to multiple factors brought about by the COVID-19 pandemic, such as supply and demand imbalance, a shortage of warehouse workers, truck drivers, transport equipment (tractors and trailers) and other causes, which have resulted in heightened congestion, bottleneck and gridlock, leading to abnormally high transportation delays. This has materially and adversely affected the Company’s business and could continue to materially and adversely affect the business and financial results for the fourth quarter of 2021. If significant disruptions along these lines continue, this could lead to further significant disruptions in the Company’s business, delays in shipments, and revenue and profitability shortfalls, which could adversely affect the business, prospects, financial condition and operating results.
The global shipping industry is also experiencing unprecedented increases in shipping rates from the trans-Pacific ocean carriers due to various factors, including limited availability of shipping capacity. For example, the cost of shipping products by ocean freight has recently increased to at least three times historical levels and will have a corresponding impact on profitability. The Company may find it necessary to rely on an increasingly expensive spot market and other alternative sources to make up any shortfall in shipping needs. Additionally, if increases in fuel prices occur, transportation costs would likely further increase. Similarly, supply chain disruptions such as those described in the preceding paragraphs may lead to an increase in transportation costs. Such cost increases have adversely affected the Company’s business and could have additional adverse effects on the business, prospects, financial condition and operating results.
The Company may experience increases in the cost or a sustained interruption in the supply or shortage of raw materials, including lithium-ion battery cells, semiconductors, and integrated circuits. Any such increase or supply interruption could materially negatively impact the business, prospects, financial condition and operating results. Currently, the Company is experiencing supply chain shortages, including with respect to lithium-ion battery cells, integrated circuits, vehicle control chips, and displays. Certain production-ready components may be delayed in shipment to company facilities which has and may continue to cause delays in validation and testing for these components, which would in turn create a delay in the availability of saleable vehicles.
The Company uses various raw materials, including aluminum, steel, carbon fiber, non-ferrous metals (such as copper), and cobalt. The prices for these raw materials fluctuate depending on market conditions, and global demand and could adversely affect business and operating results. For instance, the Company is exposed to multiple risks relating to price fluctuations for lithium-ion cells. These risks include:
● | the inability or unwillingness of current battery manufacturers to build or operate battery cell manufacturing plants to supply the numbers of lithium-ion cells required to support the growth of the electric vehicle industry as demand for such cells increases; |
● | disruption in the supply of cells due to quality issues or recalls by the battery cell manufacturers; and |
● | an increase in the cost of raw materials, such as cobalt, used in lithium-ion cells. |
Any disruption in the supply of lithium-ion battery cells, semiconductors, or integrated circuits could temporarily disrupt production of the Company’s vehicles until a different supplier is fully qualified. Moreover, battery cell manufacturers may refuse to supply electric vehicle manufacturers if they determine that the vehicles are not sufficiently safe. Furthermore, fluctuations or shortages in petroleum and other economic conditions may cause the Company to experience significant increases in freight charges and raw material costs. Substantial increases in the prices for our raw materials would increase operating costs and could reduce our margins if the increased costs cannot be recouped through increased electric vehicle prices. There can be no assurance that the Company will be able to recoup increasing costs of raw materials by increasing vehicle prices.
NOTE 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Principles of Consolidation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with GAAP and in conformity with the instructions on Form 10-Q and Rule 8-03 of Regulation S-X and the related rules and regulations of the Securities and Exchange Commission (“SEC”).
F-7 |
The unaudited condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, AYRO Operating and DropCar Operating Company, Inc. All significant intercompany accounts and transactions have been eliminated in consolidation. The unaudited condensed consolidated financial statements reflect all adjustments, consisting of normal recurring accruals, which are, in the opinion of management, necessary for a fair presentation of such statements. The results of operations for the three and nine months ended September 30, 2021, are not necessarily indicative of the results that may be expected for the entire year. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and the accompanying notes for the fiscal year ended December 31, 2020, which are included in the Company’s Annual Report on Form 10-K, filed with the SEC on March 31, 2021, as amended on April 30, 2021.
Use of Estimates
The preparation of the accompanying unaudited condensed consolidated financial statements, in conformity with GAAP, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the accompanying unaudited condensed consolidated financial statements, and the reported amounts of revenue and expenses during the reporting period.
The Company’s most significant estimates include allowance for doubtful accounts, valuation of inventory reserve, valuation of deferred tax asset allowance, and the measurement of stock-based compensation expenses. Actual results could differ from these estimates.
Reclassification
Certain reclassifications have been made to the prior period financial statements to conform to the current period financial statement presentation. These reclassifications had no effect on net earnings or cash flows as previously reported.
Revenue Recognition
The Company recognizes revenue in accordance with ASC 606, Revenue from Contracts with Customers, the core principle of which is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to receive in exchange for those goods or services.
To achieve this core principle, five basic criteria must be met before revenue can be recognized: (1) identify the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to performance obligations in the contract; and (5) recognize revenue when or as the Company satisfies a performance obligation.
Nature of goods and services
The following is a description of the Company’s products and services from which the Company generates revenue, as well as the nature, timing of satisfaction of performance obligations, and significant payment terms for each:
Product revenue
Product revenue from customer contracts is recognized on the sale of each electric vehicle as vehicles are shipped to customers. The majority of the Company’s vehicle sales orders generally have only one performance obligation: sale and delivery of complete vehicles. Ownership and risk of loss transfers to the customer based on FOB shipping point and freight charges are the responsibility of the customer. Revenue is typically recognized at the point control transfers or in accordance with payment terms customary to the business. The Company provides product warranties to assure that the product assembly complies with agreed upon specifications. The Company’s product warranty is identical to the product warranties provided by the Company’s suppliers, therefore minimizing the warranty liability to the standard labor rates associated with the defective part replacement. Customers do not have the option to purchase a warranty separately; as such, warranty is not accounted for as a separate performance obligation. The Company’s policy is to exclude taxes collected from a customer from the transaction price of automotive contracts.
Shipping revenue
Amounts
billed to customers related to shipping and handling are classified as shipping revenue. The Company has elected to recognize the cost
for freight and shipping when control over vehicles has transferred to the customer as an operating expense. The Company has reported
shipping expenses of $
Subscription revenue
Subscription revenue from revenue sharing with Destination Fleet Operators (“DFO”) and other vehicle rental agreements is recorded in the month the vehicles in the Company’s fleet is rented. The Company established its rental fleet in late March 2019 which is recorded in the property and equipment section of the accompanying unaudited condensed consolidated balance sheets. For the rental fleet, the Company retains title and ownership to the vehicles and places them in DFO’s in resort communities that typically rent golf cars for use in those communities. In August 2020, the Company phased-out the production of its 311 line which were the vehicles used in the rental offering as it is working to develop a new line of vehicles. The change in production did not represent a strategic shift that will have a major effect on the Company’s operations or financial results.
Services and other revenue
Services and other revenue consist of non-warranty after-sales vehicle services. Revenue is typically recognized at a point in time when services and replacement parts are provided.
The accounting treatment of warrants and preferred share series issued is determined pursuant to the guidance provided by ASC 470, Debt, ASC 480, Distinguishing Liabilities from Equity, and ASC 815, Derivatives and Hedging, as applicable. Each feature of a freestanding financial instruments including, without limitation, any rights relating to subsequent dilutive issuances, dividend issuances, equity sales, rights offerings, forced conversions, optional redemptions, automatic monthly conversions, dividends and exercise are assessed with determinations made regarding the proper classification in the Company’s financial statements.
The Company accounts for stock-based compensation in accordance with ASC 718, Compensation-Stock Compensation (“ASC 718”). The Company recognizes all employee share-based compensation as an expense in the financial statements on a straight-line basis over the requisite service period, based on the terms of the awards. Equity-classified awards principally related to stock options, restricted stock awards (“RSAs”) and equity-based compensation, are measured at the grant date fair value of the award. The Company determines grant date fair value of stock option awards using the Black-Scholes option-pricing model. The fair value of RSAs is determined using the closing price of the Company’s common stock on the grant date. For service based vesting grants, expense is recognized ratably over the requisite service period based on the number of options or shares. For value-based vesting grants, expense is recognized via straight line expense over the expected period per grant as determined by outside valuation experts. Stock-based compensation is reversed for forfeitures in the period of forfeiture.
We estimate the fair value of stock-based and cash unit awards containing a market condition using a Monte Carlo simulation model. Key inputs and assumptions used in the Monte Carlo simulation model include the stock price of the award on the grant date, the expected term, the risk-free interest rate over the expected term, the expected annual dividend yield and the expected stock price volatility. The expected volatility is based on a combination of the historical and implied volatility of the Company’s publicly traded, near-the-money stock options, and the valuation period is based on the vesting period of the awards. The risk-free interest rate is derived from the U.S. Treasury yield curve in effect at the time of grant and, since the Company does not currently pay or plan to pay a dividend on its common stock, the expected dividend yield was zero.
In June 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2018-07, Compensation - Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting (“ASU 2018-07”). ASU 2018-07 expands the guidance in ASC 718 to include share-based payments for goods and services to non-employees and generally aligns it with the guidance for share-based payments to employees. In accordance with ASU 2018-07, these stock options and warrants issued as compensation for services provided to the Company are accounted for based upon the fair value of the underlying equity instrument. The attribution of the fair value of the equity instrument is charged directly to compensation expense over the period during which services are rendered.
F-8 |
Basic and diluted net loss per share is determined by dividing net loss by the weighted average ordinary shares outstanding during the period. For all periods presented with a net loss, the shares underlying the ordinary share options and warrants have been excluded from the calculation because their effect would be anti-dilutive. Therefore, the weighted-average shares outstanding used to calculate both basic and diluted loss per share are the same for periods with a net loss. “Penny warrants” were included in the calculation of outstanding shares for purposes of basic earnings per share.
On
May 28, 2020, pursuant to the previously announced Merger Agreement, dated December 19, 2019, the Company issued prefunded common stock
warrants to purchase
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
Options to purchase common stock | ||||||||||||||||
Restricted Stock Unvested | ||||||||||||||||
Restricted stock vested – unissued | ||||||||||||||||
Warrants outstanding | ||||||||||||||||
Preferred Stock outstanding | ||||||||||||||||
Totals |
NOTE 4. REVENUES
Disaggregation of Revenue
Revenue by type was as follows:
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
Revenue type | ||||||||||||||||
Product revenue | $ | $ | $ | $ | ||||||||||||
Shipping revenue | ||||||||||||||||
Subscription revenue | - | - | - | |||||||||||||
Service income | - | |||||||||||||||
$ | $ | $ | $ |
F-9 |
Contract Liabilities
The Company recognizes a contract liability when a consideration is received, or if the Company has the unconditional right to receive consideration, in advance of satisfying the performance obligation. A contract liability is the Company’s obligation to transfer goods or services to a customer for which the Company has received consideration, or an amount of consideration is due from the customer.
The table below details the activity in the Company’s contract liabilities as of September 30, 2021 and December 31, 2020. The balance at the end of each period is reported as contract liability in the Company’s unaudited condensed consolidated balance sheet.
Nine Months Ended September 30, | Year Ended December 31, | |||||||
2021 | 2020 | |||||||
Balance, beginning of period | $ | $ | ||||||
Additions | - | |||||||
Transfer to revenue | ( | ) | ( | ) | ||||
Balance, end of period | $ | $ |
Warranty Reserve
The Company records a reserve for warranty repairs upon the initial delivery of vehicles to its dealer network. The Company provides a product warranty on each vehicle including powertrain, battery pack and electronics package. Such warranty matches the product warranty provided by its supply chain for warranty parts for all unaltered vehicles and is not considered a separate performance obligation. The supply chain warranty does not cover warranty-based labor needed to replace a part under warranty. Warranty reserves include management’s best estimate of the projected cost of labor to repair/replace all items under warranty. The Company reserves a percentage of all dealer-based sales to cover an industry-standard warranty fund to support dealer labor warranty repairs.
Such
percentage is recorded as a component of cost of revenues in the statement of operations. As of September 30, 2021 and December 31, 2020,
warranty reserves were recorded within accrued expenses of $
NOTE 5. ACCOUNTS RECEIVABLE, NET
Accounts receivable, net, consists of amounts due from invoiced customers and product deliveries and were as follows:
September 30, | December 31, | |||||||
2021 | 2020 | |||||||
Trade receivables | $ | $ | ||||||
Less: Allowance for doubtful accounts | ( | ) | ( | ) | ||||
$ | $ |
NOTE 6. INVENTORY, NET
Inventory consisted of the following:
September 30, | December 31, | |||||||
2021 | 2020 | |||||||
Raw materials | $ | $ | ||||||
Work-in-progress | - | - | ||||||
Finished goods | ||||||||
$ | $ |
F-10 |
Depreciation
expense for fleet inventory for the three months ended September 30, 2021 and 2020 was $
NOTE 7. PREPAID EXPENSES AND OTHER CURRENT ASSETS
September 30, | December 31, | |||||||
2021 | 2020 | |||||||
Prepaid final assembly services | $ | $ | ||||||
Prepayments for inventory | ||||||||
Prepaid other | ||||||||
$ | $ |
NOTE 8. PROPERTY AND EQUIPMENT, NET
Property and equipment consisted of the following:
September 30, | December 31, | |||||||
2021 | 2020 | |||||||
Computer and equipment | $ | $ | ||||||
Furniture and fixtures | ||||||||
Lease improvements | ||||||||
Prototypes | ||||||||
Computer software | ||||||||
Less: Accumulated depreciation | ( | ) | ( | ) | ||||
$ | $ |
Depreciation
expense for the three months ended September 30, 2021 and 2020 was $
NOTE 9. INTANGIBLE ASSETS, NET
Intangible assets consisted of the following:
September 30, 2021 | ||||||||||||||||
Gross Amount | Accumulated Amortization | Net Carrying Amount | Weighted- Average Amortization Period | |||||||||||||
Supply chain development | $ | $ | ( | ) | $ | |||||||||||
Patents and trademarks | ( | ) | ||||||||||||||
$ | $ | ( | ) | $ |
December 31, 2020 | ||||||||||||||||
Gross Amount | Accumulated Amortization | Net Carrying Amount | Weighted- Period | |||||||||||||
Supply chain development | $ | $ | ( | ) | $ | |||||||||||
Patents | ( | ) | ||||||||||||||
$ | $ | ( | ) | $ |
F-11 |
Amortization
expense for the three months ended September 30, 2021 and 2020, was $
NOTE 10. STOCKHOLDERS’ EQUITY
Common Stock
In
April 2020, the Company issued
On
June 17, 2020, the Company entered into a Securities Purchase Agreement with certain existing investors, pursuant to which the Company
sold, in a registered public offering by the Company directly to the investors an aggregate of
On
July 6, 2020, the Company entered into a Securities Purchase Agreement with certain existing investors, pursuant to which the Company
sold, in a registered public offering by the Company directly to the investors an aggregate of
On
July 21, 2020, the Company entered into a Securities Purchase Agreement with certain existing investors, pursuant to which the Company
sold, in a registered public offering by the Company directly to the investors an aggregate of
During July 2020, the Company issued shares of common stock from the conversion of shares of Series H-6 Preferred Stock.
On
November 22, 2020, the Company entered into a Securities Purchase Agreement with certain institutional and accredited investors, pursuant
to which such stockholders agreed to purchase an aggregate of
During
the year ended December 31, 2020, the Company issued
During
the year ended December 31, 2020, the Company issued
During
the year ended December 31, 2020, the Company issued
During
the year ended December 31, 2020, the Company issued
F-12 |
During the year ended December 31, 2020, the Company issued shares of common stock to advisors in connection with the Merger.
In
December 2020, based on its contract, the Company agreed to issue
During the year ended December 31, 2020, the Company issued shares of the common stock from the conversion of shares of AYRO Seed Preferred Stock.
During the year ended December 31, 2020, the Company issued shares of common stock from the exercise of stock options and received cash proceeds of $ .
During the year ended December 31, 2020, the Company issued shares of common stock from the conversion of shares of H-3 Preferred Stock.
On
January 25, 2021, AYRO entered into a Securities Purchase Agreement with certain institutional and accredited investors, pursuant to
which AYRO agreed to issue and sell in a registered direct offering (the “January 2021 Offering”) an aggregate of
shares of common stock of AYRO, par value $ per share, at an offering price of $ per share, for gross proceeds of $
On
February 11, 2021, AYRO entered into a Securities Purchase Agreement with certain institutional and accredited investors, pursuant to
which AYRO agreed to issue and sell in a registered direct offering (the “February 2021 Offering”) an aggregate of
On March 17, 2021, in connection with that certain Agreement and Plan of Merger dated December 19, 2019, whereby certain former stockholders of AYRO Operating entered into lock-up agreements (collectively, the “May Lock-Up Agreements”) pursuant to which they agreed to certain restrictions on the transfer or sale of shares of the Company’s common stock for the one-year period following the Merger, AYRO modified the May Lock-Up Agreements to allow each stockholder party to a May Lock-Up Agreement to As of May 28, 2021, all of the May Lock-up Agreements were expired.
Pursuant
to the Securities Purchase Agreement dated July 21, 2020, during the nine months ended September 30, 2021 investors purchased 302,500
of the Additional Shares of common stock of AYRO, par value $
During
February 2021, the Company issued
During
the nine months ended September 30, 2021, the Company issued
During
the nine months ended September 30, 2021, the Company issued
F-13 |
Restricted Stock
During the year ended December 31, 2020, the Company
issued
Preferred Stock
Upon closing of the Merger, the Company assumed the Series H, H-3 and H-6 preferred stock of DropCar, Inc., which respective conversion prices have been adjusted to reflect the May 2020 one-for-five reverse split.
Series H Convertible Preferred Stock
Under
the terms of the Series H Certificate of Designation, each share of the Company’s Series H Convertible Preferred Stock (the “Series
H Preferred Stock”) has a stated value of $
As of September 30, 2021, such payment would be calculated as follows:
Number of Series H Preferred Stock outstanding as of September 30, 2021 | ||||
Multiplied by the stated value | $ | |||
Equals the gross stated value | $ | |||
Divided by the conversion price | $ | |||
Equals the convertible shares of Company Common Stock | ||||
Multiplied by the fair market value of Company Common Stock as of September 30, 2021 | $ | |||
Equals the payment | $ |
Series H-3 Convertible Preferred Stock
Pursuant to the Series H-3 Certificate of Designation (as defined below), the holders of the Company’s Series H-3 Convertible Preferred Stock (the “Series H-3 Preferred Stock”) are entitled to elect up to two members of a seven-member Board, subject to certain step downs; pursuant to the Series H-3 securities purchase agreement, the Company agreed to effectuate the appointment of the designees specified by the Series H-3 investors as directors of the Company.
Under
the terms of the Series H-3 Certificate of Designation, each share of the Series H-3 Preferred Stock has a stated value of $
F-14 |
In the event of liquidation, the holders of the Series H-3 Preferred Stock are entitled, pari passu with the holders of common stock, to receive a payment in the amount the holder would receive if such holder converted the Series H-3 Preferred Stock into common stock immediately prior to the date of such payment.
As of September 30, 2021, such payment would be calculated as follows:
Number of Series H-3 Preferred Stock outstanding as of September 30, 2021 | ||||
Multiplied by the stated value | $ | |||
Equals the gross stated value | $ | |||
Divided by the conversion price | $ | |||
Equals the convertible shares of Company Common Stock | ||||
Multiplied by the fair market value of Company Common Stock as of September 30, 2021 | $ | |||
Equals the payment | $ |
Series H-6 Convertible Preferred Stock
On
February 5, 2020, the Company filed the Certificate of Designations, Preferences and Rights of the Series H-6 Preferred Stock (the “Series
H-6 Certificate of Designation”) with the Secretary of State of the State of Delaware, establishing and designating the rights,
powers and preferences of the Series H-6 Preferred Stock. The Company designated up to shares of Series H-6 Preferred Stock and
each share has a stated value of $ (the “H-6 Stated Value”).
The
Series H-6 Preferred Stock also has the same voting rights as the common stock, except that in no event shall a holder of Series H-6
Preferred Stock be permitted to exercise a greater number of votes than such holder would have been entitled to cast if the Series H-6
Preferred Stock had immediately been converted into shares of common stock at a conversion price equal to $
The holders of Series H-6 Preferred Stock are entitled to certain anti-dilution adjustments if the Company issues shares of its common stock at a lower price per share than the applicable conversion price of the Series H-6 Preferred Stock. If any such dilutive issuance occurs prior to the conversion of the Series H-6 Preferred Stock, the conversion price will be adjusted downward to a price that cannot be less than 20% of the exercise price of $3.60.
In the event of liquidation, the holders of the Series H-6 Preferred Stock are entitled, pari passu with the holders of common stock, to receive a payment in the amount the holder would receive if such holder converted the Series H-6 Preferred Stock into common stock immediately prior to the date of such payment.
As of September 30, 2021, such payment would be calculated as follows:
Number of Series H-6 Preferred Stock outstanding as of September 30, 2021 | ||||
Multiplied by the stated value | $ | |||
Equals the gross stated value | $ | |||
Divided by the conversion price | $ | |||
Equals the convertible shares of Company Common Stock | ||||
Multiplied by the fair market value of Company Common Stock as of September 30, 2021 | $ | |||
Equals the payment | $ |
F-15 |
Warrants
AYRO Seed Warrants
Prior
to the Merger, the Company issued
Series I, J, H, H-1, H-3, H-4 and H-5 warrants transferred to AYRO common stock pursuant to the Merger.
Series I Warrants
As
a result of the Merger,
Series H-3 Warrants
As
a result of the Merger,
Exercise of Series H-4 Warrants and Issuance of Series J Warrants
Series H-4 Warrants
As
a result of the Merger,
As
a result of the Merger,
F-16 |
Series H-5 Warrants
As
a result of the Merger,
The
Company considers the change in exercise price due to the anti-dilution trigger related to the Series H-5 Warrants to be of an equity
nature, as the issuance allowed the warrant holders to exercise warrants in exchange for common stock, which represents an equity for
equity exchange. Therefore, the change in the fair value before and after the effect of the anti-dilution triggering event and the fair
value of the Series H-5 warrants will be treated as a deemed dividend in the amount of $
The warrants were valued using the Black-Scholes option pricing model on the date of the modification and issuance using the following assumptions: (a) fair value of common stock of $2.77 per share, (b) expected volatility of , (c) dividend yield of , (d) risk-free interest rate of , and (e) expected life of 5 years. The Series H-5 Warrants were exercisable beginning June 6, 2020.
The
Series H-1, H-3, H-4, J and H-5
Other AYRO Warrants
On
June 19, 2020, the Company agreed to issue finder warrants (the “June Finder Warrants”) to purchase
On
July 8, 2020, the Company agreed to issue finder warrants (the “July 8 Finder Warrants”) to purchase
The
July 8 Finder Warrants and July 8 Placement Agent Warrants terminate after a period of
On
July 22, 2020, the Company agreed to issue warrants to Palladium (the “July 22 Placement Agent Warrants”) to purchase
F-17 |
On
September 25, 2020, the Company issued a warrant (the “September Warrant”) to purchase
The following assumptions were used to determine the fair value of the September Warrants:
As of September 25, 2020 | ||||
Dividend | % | |||
Risk Free Rate | % | |||
Exercise Price | $ | |||
Strike Price | $ | |||
Term | ||||
Volatility | % |
On
November 22, 2020, the Company entered into a Securities Purchase Agreement with new and current stockholders of the Company, pursuant
to which such stockholders agreed to purchase shares of AYRO’s Common Stock, Series A Warrants and Series B Warrants to purchase
AYRO’s Common Stock for an aggregate purchase price of $
On
November 22, 2020, the Company agreed to issue finder warrants (the “November Finder Warrants”) to purchase
On
January 25, 2021, AYRO entered into a Securities Purchase Agreement with certain institutional and accredited investors, pursuant to
which AYRO agreed to issue and sell in a registered direct offering (the “January 2021 Offering”) an aggregate of per share, at an offering price of $ per share, for gross proceeds of approximately
$