AYRO(US:AYRO)2020-11-06 13:00Mergers and Agreements - The company completed a merger on May 28, 2020, with AYRO Operating, resulting in former AYRO Operating equity holders owning approximately 79% of the outstanding equity of the company [160]. - The company has a Master Procurement Agreement with Club Car, which grants Club Car exclusive rights to sell the company's four-wheeled vehicle in North America, requiring a minimum order of 500 vehicles per year [167]. - The company entered into a Securities Purchase Agreement on June 17, 2020, issuing 2,200,000 shares at $2.50 per share, raising approximately $5.5 million before fees [168]. - On July 6, 2020, the company issued 3,157,895 shares at $4.75 per share, generating gross proceeds of approximately $15.0 million before fees [169]. - The company entered into a Master Manufacturing Services Agreement with Karma Automotive for 12 months, with compensation of $1,160,800 for manufacturing services [171]. - The company has developed a strategic partnership with Autonomic, a division of Ford, to jointly develop cloud-based vehicle applications [165]. Financial Performance - For the three months ended September 30, 2020, total revenue increased by $123,173, or 46.4%, compared to the same period in 2019, primarily due to increased vehicle sales and specialty product sales [189]. - Cost of goods sold increased by $124,642, or 61.7%, for the three months ended September 30, 2020, corresponding with the increase in revenue [190]. - Gross margin percentage was 15.9% for the three months ended September 30, 2020, down from 23.9% for the same period in 2019, primarily due to initial one-time costs in production runs [191]. - Research and development expense increased by $366,465, or 123.1%, for the three months ended September 30, 2020, driven by increased engineering investment [192]. - Sales and marketing expense decreased by $127,395, or 29.5%, for the three months ended September 30, 2020, primarily due to reduced contracting for professional services [193]. - General and administrative expense increased by $70,642, or 5.0%, for the three months ended September 30, 2020, due to increased professional services and corporate expansion [194]. - Net loss attributable to common stockholders for the three months ended September 30, 2020, was $3,113,453, compared to a net loss of $2,141,840 for the same period in 2019 [188]. - Total revenue for the nine months ended September 30, 2020, increased by $75,868, or 10.2%, compared to the same period in 2019, primarily due to increased vehicle sales and specialty product sales [199]. - Cost of goods sold increased by $67,924 for the nine months ended September 30, 2020, corresponding with the revenue increase [200]. - Gross profit percentage decreased to 21.4% for the nine months ended September 30, 2020, down from 22.5% in the same period in 2019, due to initial one-time costs in production runs [201]. - Net loss for the nine months ended September 30, 2020, was $6,006,735, compared to a net loss of $5,214,578 in the same period in 2019 [212]. - Adjusted EBITDA for the nine months ended September 30, 2020, was $(4,296,033), compared to $(3,232,185) for the same period in 2019 [212]. Cash Flow and Financing - As of September 30, 2020, the company had approximately $27,916,838 in cash and working capital of approximately $29,900,000, a significant increase from the previous year [213]. - The company raised approximately $31,349,638 from financing activities for the nine months ended September 30, 2020, compared to $3,513,062 in the same period in 2019 [222]. - AYRO used $6,542,495 in cash from operating activities for the nine months ended September 30, 2020, an increase of 106.5% compared to $3,168,709 in the same period in 2019 [223]. - AYRO generated $500,000 of debt financing from DropCar investors and $600,000 from a private investor during the nine months ended September 30, 2020, with total cash generated from financing activities amounting to $28,790,995 [226]. - AYRO provided cash of $2,467,873 in investing activities for the nine months ended September 30, 2020, compared to cash used of $322,773 in the same period in 2019, marking an increase of 666.5% [225]. - The company generated $2,983,527 from the exercise of warrants during the nine months ended September 30, 2020, with no warrants exercised in 2019 [226]. - AYRO's ability to generate cash from operations in future periods will depend on profitability, accounts receivable collections, inventory turns, and working capital management [224]. Operational Risks and Challenges - The company relies on a single third-party supplier for sub-assemblies in semi-knocked-down for all vehicles, which poses a risk to operations [158]. - The company has a history of losses and expects to incur additional losses in the future, indicating potential challenges in achieving profitability [157]. - The COVID-19 pandemic has adversely impacted the company's ability to procure raw materials and meet customer demand, which is expected to affect sales in 2020 [179]. Accounting and Financial Reporting - AYRO's revenue recognition follows ASC 606, with product revenue recognized upon the sale of electric vehicles as they are shipped to customers [238]. - The company has made certain indemnities related to transactions, but historically has not been obligated to make any payments for these obligations [228]. - AYRO does not have any off-balance sheet financing arrangements or liabilities, ensuring transparency in its financial statements [229]. - The company recorded stock-based compensation of $908,650 in October 2019 related to the termination of a royalty-based agreement [232]. - As of September 30, 2020, AYRO's inventory consists of purchased chassis, cabs, batteries, and component parts, stated at the lower of cost or net realizable value [253]. - The Company has not identified or recorded any impairment losses on long-lived assets for the three and nine months ended September 30, 2020 and 2019 [255]. - As of September 30, 2020, there were no accruals for uncertain tax positions, indicating a stable tax position [256]. - The Company is currently evaluating the impact of adopting ASU 2020-06 on its financial statements, which addresses complexities in accounting for convertible instruments [257]. - The amendments in ASU 2016-13 regarding expected credit losses will be effective for fiscal years beginning after December 15, 2022, and the Company does not expect a material impact from this guidance [258]. - The Company adopted ASU 2018-13 on January 1, 2020, which did not have a material impact on its condensed consolidated financial statements [259]. - The adoption of ASU 2017-11 on January 1, 2020, also did not materially impact the Company's unaudited condensed consolidated financial statements [260].