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    AYRO   US0547481087

AYRO, INC.

(AYRO)
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AYRO : MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-Q)

05/13/2021 | 04:09pm EDT

The following management's discussion and analysis should be read in conjunction with our historical financial statements and the related notes thereto. This management's discussion and analysis contains forward-looking statements, such as statements of our plans, objectives, expectations and intentions. Any statements that are not statements of historical fact are forward-looking statements. When used, the words "believe," "plan," "intend," "anticipate," "target," "estimate," "expect" and the like, and/or future tense or conditional constructions ("will," "may," "could," "should," etc.), or similar expressions, identify certain of these forward-looking statements. These forward-looking statements are subject to risks and uncertainties, including those under "Risk Factors" in our filings with the Securities and Exchange Commission ("SEC") that could cause actual results or events to differ materially from those expressed or implied by the forward-looking statements. Our actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of several factors. See "Cautionary Note Regarding Forward-Looking Statements."

References in this management's discussion and analysis to "we," "us," "our," "our Company" or "AYRO" refer to AYRO, Inc. and its subsidiaries.

Cautionary Note Regarding Forward-Looking Statements

This quarterly report on Form 10-Q (this "Form 10-Q") contains forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements may be identified by the use of forward-looking terms such as "anticipates," "assumes," "believes," "can," "could," "estimates," "expects," "forecasts," "guides," "intends," "is confident that," "may," "plans," "seeks," "projects," "targets," "would" and "will" or the negative of such terms or other variations on such terms or comparable terminology. Such forward-looking statements include, but are not limited to, future financial and operating results, the company's plans, objectives, expectations and intentions and other statements that are not historical facts. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition, and results of operations. These forward-looking statements speak only as of the date of this Form 10-Q and are subject to a number of risks, uncertainties, and assumptions that could cause actual results to differ materially from our historical experience and our present expectations, or projections described under the sections in this Form 10-Q and our other reports filed with the SEC titled "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations".

If any of the following risks occur, our business, financial condition, results of operations, cash flows, cash available for distribution, ability to service our debt obligations and prospects could be materially and adversely affected.'

? we may be acquired by a third party based on preexisting agreements;

? we have a history of losses and have never been profitable, and we expect to

incur additional losses in the future and may never be profitable;

? the market for our products is developing and may not develop as expected;

? our business is subject to general economic and market conditions, including

trade wars and tariffs;

? our business, results of operations and financial condition may be adversely

impacted by public health epidemics, including the recent COVID-19 outbreak;

? our limited operating history makes evaluating our business and future

prospects difficult and may increase the risk of any investment in our

  securities;




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? we may experience lower-than-anticipated market acceptance of our vehicles;

? developments in alternative technologies or improvements in the internal

combustion engine may have a materially adverse effect on the demand for our

electric vehicles;

? the markets in which we operate are highly competitive, and we may not be

successful in competing in these industries;

? a significant portion of our revenues are derived from a single customer;

? we rely on and intend to continue to rely on a single third-party supplier

and manufacturer located in the People's Republic of China for the

sub-assemblies in a semi-knocked-down state for our current vehicles;

? we may become subject to product liability claims, which could harm our

financial condition and liquidity if we are not able to successfully defend

or insure against such claims;

? the range of our electric vehicles on a single charge declines over time,

which may negatively influence potential customers' decisions whether to

    purchase our vehicles;
?   increases in costs, disruption of supply or shortage of raw materials, in

particular lithium-ion cells, could harm our business;

? our business may be adversely affected by labor and union activities;

? we may be required to raise additional capital to fund our operations, and

such capital raising may be costly or difficult to obtain and could dilute

our stockholders' ownership interests, and our long-term capital requirements

are subject to numerous risks;

? increased safety, emissions, fuel economy, or other regulations may result in

higher costs, cash expenditures, and/or sales restrictions;

? we may fail to comply with environmental and safety laws and regulations;

? our proprietary designs are susceptible to reverse engineering by our

competitors;

? if we are unable to protect the confidentiality of our trade secrets or

know-how, such proprietary information may be used by others to compete

against us;

? should we begin transacting business in other currencies, we are subject to

exposure from changes in the exchange rates of local currencies; and

? we are subject to governmental export and import controls that could impair

our ability to compete in international market due to licensing requirements

and subject us to liability if we are not in compliance with applicable laws.

For a more detailed discussion of these and other factors that may affect our business and that could cause the actual results to differ materially from those projected in these forward-looking statements, see the risk factors and uncertainties set forth in Part I, Item 1A of our Annual Report on Form 10-K as filed on March 31, 2021 as amended on April 30, 2021. Any one or more of these uncertainties, risks and other influences could materially affect our results of operations and whether forward-looking statements made by us ultimately prove to be accurate. We undertake no obligation to publicly update or revise any forward-looking statements, whether from new information, future events or otherwise, except as required by law.



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Overview



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, a Delaware corporation previously known as AYRO, Inc. ("AYRO Operating"), 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 $0.001 per share (the "AYRO Operating Common Stock"), including shares underlying AYRO Operating's outstanding equity awards and warrants, was converted into the right to receive 1.3634 pre-split and pre-stock dividend shares (the "Exchange Ratio") of the Company's common stock, par value $0.0001 per share (the "Company Common Stock"). Upon completion of the Merger and the transactions contemplated in the Merger Agreement and assuming the exercise in full of all pre-funded warrants issued pursuant thereto, (i) the former AYRO Operating equity holders (including the investors in a bridge financing and private placements that closed prior to closing of the Merger) owned approximately 79% of the outstanding equity of the Company; (ii) former DropCar stockholders owned approximately 18% of the outstanding equity of the Company; and (iii) a financial advisor to DropCar and AYRO owned approximately 3% of the outstanding equity of the Company.

The Merger was treated as a reverse recapitalization effected by a share exchange for financial accounting and reporting purposes since 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 is treated as the accounting acquirer as its stockholders control 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.

Reverse Stock Split and Stock Dividend

On May 28, 2020, immediately following the effective time of the Merger, we effected a reverse stock split of the issued and outstanding shares of our common stock, at a ratio of one share for ten shares (the "Reverse Stock Split"). Immediately following the Reverse Stock Split, we issued a stock dividend of one share of the Company's common stock for each outstanding share of common stock to all holders of record immediately following the effective time of the Reverse Stock Split (the "Stock Dividend").

The net result of the Reverse Stock Split and the Stock Dividend was a 1-for-5 reverse stock split. We made proportionate adjustments to the per share exercise price and/or the number of shares issuable upon the exercise or vesting of all stock options, restricted stock units (if any) and warrants outstanding as of the effective times of the Reverse Stock Split and the Stock Dividend in accordance with the terms of each security based on the split or dividend ratio. Also, we reduced the number of shares reserved for issuance under our equity compensation plans proportionately based on the split and dividend ratios. Except for adjustments that resulted from the rounding up of fractional shares to the next whole share, the Reverse Stock Split and Stock Dividend affected all stockholders uniformly and did not change any stockholder's percentage ownership interest in the Company. The Reverse Stock Split did not alter the par value of Company Common Stock, $0.0001 per share, or modify any voting rights or other terms of the common stock. Except as otherwise set forth herein, share and related option or warrant information presented in this Management's Discussion and Analysis of Financial Condition and Results of Operations have been adjusted to reflect the reduced number of shares outstanding, the increase in share price which resulted from these actions or otherwise to give effect to the Reverse Stock Split and the Stock Dividend.



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Closing of Asset Purchase Agreement

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. On May 28, 2020, the parties to the Asset Purchase Agreement entered into Amendment No. 1 to the Asset Purchase Agreement (the "Asset Purchase Agreement Amendment"), which Asset Purchase Agreement Amendment (i) provides for the inclusion of up to $30,000 in refunds associated with certain insurance premiums as assets being purchased by DC Partners, (ii) amends the covenant associated with the funding of the DropCar business, such that DropCar provided the DropCar business with additional funding of $175,000 at the closing of the transactions contemplated by the Asset Purchase Agreement and (iii) provides for a current employee of the Company being transferred to DC Partners to provide transition services to the Company for a period of three months after the closing of the transactions contemplated by the Asset Purchase Agreement. The Asset Purchase Agreement closed on May 28, 2020, immediately following the consummation of the Merger.



Business


Prior to the Merger, DropCar provided consumer and enterprise solutions to urban automobile-related logistical challenges. Following the Merger, we design and manufacture compact, sustainable electric vehicles for closed campus mobility, urban and community transport, local on-demand and last mile delivery, and government use. Our four-wheeled purpose-built electric vehicles are geared toward commercial customers including universities, business and medical campuses, last mile delivery services and food service providers. We are currently designing our next generation three-wheeled vehicle to support the above-listed markets.



Products


AYRO vehicles provide the end user an environmentally friendly alternative to internal combustion engine vehicles (cars powered by gasoline or diesel oil), for light duty uses, including low-speed logistics, maintenance and cargo services, at a lower total cost. The majority of our sales are comprised of sales of our four-wheeled vehicle to Club Car, a division of Ingersoll Rand, Inc. ("Club Car"), through a strategic arrangement entered in early 2019. We plan to continue growing our business through our experienced management team by leveraging our supply chain, allowing us to scale production without a large capital investment.

Manufacturing Agreement with Cenntro

In 2017, AYRO Operating partnered with Cenntro Automotive Group, Ltd. ("Cenntro"), which operates a large electric vehicle factory in the automotive district in Hangzhou, China, in a supply chain agreement to provide sub-assembly manufacturing services. Through the partnership, Cenntro initially acquired 19% in 2017 of AYRO Operating's common stock. Cenntro beneficially owned approximately 4.38% of our common stock as of December 31, 2020 and 3.37% as of March 31, 2021. Cenntro owns the design of the AYRO 411 Fleet vehicles and has granted us an exclusive license to purchase the AYRO 411 Fleet vehicles for sale in North America.

Under our Manufacturing License Agreement with Cenntro (the "MLA"), in order for us to maintain our exclusive territorial rights pursuant to the MLA, for the first three years after the effective date of March 22, 2020, we must meet the following minimum purchase requirements, which we believe we satisfied for the initial period: (i) a minimum of 300 units sold by the first anniversary of the effective date of the MLA; (ii) a minimum of 800 units sold by the second anniversary of the effective date of the MLA; and (iii) a minimum of 1,300 units sold by the third anniversary of the effective date of the MLA.



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Cenntro will determine the minimum sale requirements for the years thereafter. Should any event of default occur, the other party may terminate the MLA by providing written notice to the defaulting party, who will have 90 days from the effective date of the notice to cure the default. Unless waived by the party providing notice, a failure to cure the default(s) within the 90-day time frame will result in the automatic termination of the MLA. Events of default under the MLA include a failure to make a required payment when due, the insolvency or bankruptcy of either party, the subjection of either party's property to any levy, seizure, general assignment for the benefit of creditors, and a failure to make available or deliver the products in the time and manner provided for in the MLA. We are dependent on the MLA, and in the event of its termination our manufacturing operations and customer deliveries would be materially impacted.

Master Procurement Agreement with Club Car

In March 2019, AYRO Operating entered into a five-year Master Procurement Agreement, or the MPA, with Club Car for the sale of our four-wheeled vehicle. The MPA grants Club Car the exclusive right to sell AYRO's four-wheeled vehicle in North America, provided that Club Car orders at least 500 vehicles per year. Although Club Car did not meet the volume threshold for 2020, we currently have no intention of selling our four-wheeled vehicles other than exclusively through Club Car. Under the terms of the MPA, we receive orders from Club Car dealers for vehicles of specific configurations, and AYRO invoices Club Car once the vehicle has shipped. The MPA has an initial term of five (5) years commencing January 1, 2019 and may be renewed by Club Car for successive one-year periods upon 60 days' prior written notice. Pursuant to the MPA, we granted Club Car a right of first refusal for sales of 51% or more of AYRO Operating's assets or equity interests, which right of first refusal is exercisable for a period of 45 days following AYRO Operating's delivery of an acquisition notice to Club Car. We also agreed to collaborate with Club Car on new products similar to our four-wheeled vehicle and improvements to existing products and granted Club Car a right of first refusal to purchase similar commercial utility vehicles we develop during the term of the MPA. We are currently engaged in discussions with Club Car to develop additional products to be sold by Club Car in Europe and Asia but there can be no assurance that these discussions will be successful. For the three months ended March 31, 2021, revenues from Club Car constituted approximately 75% of our revenue. Any loss of, or a significant reduction in purchases by, Club Car that constitutes a significant portion of our sales could have an adverse effect on our financial condition and operating results.

Manufacturing Services Agreement with Karma

On September 25, 2020, we entered into a Master Manufacturing Services Agreement (the "Karma Agreement") with Karma Automotive LLC ("Karma"), pursuant to which Karma agreed to provide certain manufacturing services for the production of our vehicles. The initial statement of work provides that Karma will perform assembly of a certain quantity of the AYRO 411 vehicles and provide testing, materials management and outbound logistics services. For such services in the initial statement of work, we agreed to pay $1.2 million to Karma, of which (i) $0.52 million was paid at closing and (ii) $0.64 million is due and payable five months following the satisfaction of certain production requirements. The Karma Agreement expires (i) 12 months from the start of volume production of the vehicles or (ii) such earlier time as the parties mutually agree in writing. In addition, Karma, in its sole discretion, may terminate the Karma Agreement at any time, without cause, upon twelve months' prior written notice. We may terminate the Karma Agreement, without cause, upon six months' prior written notice.

On February 24, 2021, a first amendment to the Karma Agreement was made where Parties jointly agree to amend the terms of Exhibit A Statement of Work to Master Services Agreement, in order to allow Karma to assemble a certain number of units of the AYRO 411 vehicle.

Supply Agreement with Gallery Carts

During 2020, we entered into a supply agreement with Gallery Carts, a leading provider of food and beverage kiosks, carts, and mobile storefront solutions. Joint development efforts have led to the launch of the parties' first all-electric configurable mobile hospitality vehicle for "on-the-go" venues across the United States. This innovative solution permits food, beverage and merchandising operators to bring goods directly to consumers.



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The configurable Powered Vendor Box, in the rear of the vehicle, features long-life lithium batteries that power the preconfigured hot/cold beverage and food equipment and is directly integrated with the Club Car 411. The canopy doors, as well as the full vehicle, can be customized with end-user logos and graphics to enhance the brand experience. Gallery, with 40 years of experience delivering custom food kiosk solutions, has expanded into mobile electric vehicles as customers increasingly want food, beverages and merchandise delivered to where they are gathering. For example, a recent study conducted by Technomic found that a large majority of students, 77%, desired alternative mobile and to-go food options on campus.

Gallery Carts, a premier distributor of Club Car 411 low-speed electric vehicles manufactured by AYRO, has a diverse clientele throughout mobile food, beverage and merchandise distribution markets, for key customer applications such as university, corporate and government campuses, major league and amateur-level stadiums and arenas, resorts, airports and event centers. In addition to finding innovative and safe ways to deliver food and beverages to their patrons, reducing and ultimately eliminating their carbon footprint is a top priority for many of these customers.



Recent Developments


On January 25, 2021, we entered into a securities purchase agreement with certain institutional and accredited investors, pursuant to which we agreed to issue and sell in a registered direct offering an aggregate of 3,333,334 shares at an offering price of $6.00 per share, for gross proceeds of $20.0 million before the deduction of fees and offering expenses. In a concurrent private placement, we sold to such investors warrants to purchase, at any time on or after July 26, 2021 and on or before July 26, 2023, additional shares of common stock equal to the full amount of the common stock it purchased at the initial closing, or an aggregate of 3,333,334 shares, at an exercise price of $6.93 per share.

In connection with the January 25, 2021 securities purchase agreement, we issued Palladium Capital Group, LLC (collectively with its affiliates, "Palladium") a warrant to purchase 233,334 shares of common stock (which equals 7.0% of the aggregate number of shares of common stock sold in the January 2021 registered direct offering). The warrants issued to Palladium have the same terms as the investor warrants issued under the January 25, 2021 concurrent private placement.

On February 11, 2021, we entered into a securities purchase agreement with certain institutional and accredited investors, pursuant to which we agreed to issue and sell in a registered direct offering an aggregate of 4,400,001 shares of common stock at an offering price of $9.50 per share, for gross proceeds of $41.8 million before the deduction of fees and offering expenses. Each purchaser was also granted an option to purchase, on or before February 16, 2022, additional shares of common stock equal to the full amount of 75% of the common stock it purchased at the initial closing, or an aggregate of 3,300,001 shares, at an exercise price of $11.50 per share.

Palladium and Spartan Capital Securities, LLC ("Spartan," or collectively with Palladium, the "Financial Advisors") were entitled to a fee equal to 8% of the gross proceeds raised in the February 2021 registered direct offering and warrants to purchase an aggregate of 271,158 shares of our common stock at an exercise price of $10.925 per share and 35,885 shares of our common stock at an exercise price of $10.45 per share. The warrants are exercisable immediately following issuance and terminate five years following issuance.

Pursuant to the Securities Purchase Agreement dated July 21, 2020, during the three months ended March 31, 2021, investors purchased 302,500 of the Additional Shares of our common stock par value $0.0001 per share, at an offering price of $5.00 per share, for gross proceeds of $1.5 million.



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Factors Affecting Results of Operations

Master Procurement Agreement

In March 2019, we entered into the MPA with Club Car. In partnership with Club Car and in interaction with its substantial dealer network, we have redirected our business development resources towards supporting Club Car's enterprise and fleet sales function as Club Car proceeds in its new product introduction initiatives.




COVID-19 Pandemic



Our business, results of operations and financial condition have been adversely impacted by the recent coronavirus outbreak both in China and the United States. This has delayed our ability to timely procure raw materials from our supplier in China, which in turn, has delayed shipments to and corresponding revenue from customers. The pandemic and social distancing directives have interfered with our ability, and the ability of our employees, workers, contractors, suppliers and other business partners to perform our and their respective responsibilities and obligations relative to the conduct of our business. The COVID-19 pandemic poses restrictions on our employees' and other service providers' ability to travel on pre-sales meetings, customers' abilities to physically meet with our employees and the ability of our customers to test drive or purchase our vehicles and shutdowns that may be requested or mandated by governmental authorities, and we expect these restrictions to continue at least though the second quarter of 2021. The pandemic adversely impacted our sales and the demand for our products in 2020 and is expected to continue adversely impacting demand for our products in 2021.

Components of Results of Operations



Revenue


We derive revenue from the sale of our four-wheeled electric vehicles, and, to a lesser extent, shipping, parts and service fees. In the past we also derived rental revenue from vehicle revenue sharing agreements with our tourist destination fleet operators, or Destination Fleet Operators ("DFOs"), and, to a lesser extent, shipping, parts and service fees. Provided that all other revenue recognition criteria have been met, we typically recognize revenue upon shipment, as title and risk of loss are transferred to customers and channel partners at that time. Products are typically shipped to dealers or directly to end customers, or in some cases to our international distributors. These international distributors assist with import regulations, currency conversions and local language. Our vehicle product sales revenues vary from period to period based on, among other things, the customer orders received and our ability to produce and deliver the ordered products. Customers often specify requested delivery dates that coincide with their need for our vehicles.

Because these customers may use our products in connection with a variety of projects of different sizes and durations, a customer's orders for one reporting period generally do not indicate a trend for future orders by that customer. Additionally, order patterns do not necessarily correlate amongst customers.



Cost of Goods Sold


Cost of goods sold primarily consists of costs of materials and personnel costs associated with manufacturing operations, and an accrual for post-sale warranty claims. Personnel costs consist of wages and associated taxes and benefits. Cost of goods sold also includes freight and changes to our warranty reserves. Allocated overhead costs consist of certain facilities and utility costs. We expect cost of revenue to increase in absolute dollar, as product revenue increases.




Operating Expenses



Our operating expenses consist of general and administrative, sales and marketing and research and development expenses. Salaries and personnel-related costs, benefits, and stock-based compensation expense are the most significant components of each category of operating expenses. Operating expenses also include allocated overhead costs for facilities and utility costs.



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Research and Development Expense

Research and development expense consists primarily of employee compensation and related expenses, prototype expenses, depreciation associated with assets acquired for research and development, amortization of product development costs, product strategic advisory fees, third-party engineering and contractor support costs and allocated overhead. We expect our research and development expenses to increase in absolute dollars as we continue to invest in new and existing products.




Sales and Marketing Expense



Sales and marketing expense consist primarily of employee compensation and related expenses, sales commissions, marketing programs, travel and entertainment expenses and allocated overhead. Marketing programs consist of advertising, tradeshows, events, corporate communications and brand-building activities. We expect sales and marketing expenses to increase in absolute dollars as we expand our sales force, expand our product lines, increase marketing resources, and further develop sales channels.

General and Administrative Expense

General and administrative expense consists primarily of employee compensation and related expenses for administrative functions including finance, legal, human resources and fees for third-party professional services, and allocated overhead. We expect our general and administrative expense to increase in absolute dollars as we continue to invest in growing our business.



Stock-based compensation


We account for stock-based compensation expense in accordance with ASC 718, Compensation-Stock Compensation, which requires the measurement and recognition of compensation expense for share-based awards based on the estimated fair value on the date of grant.

The fair value of each stock option granted to employees is estimated on the date of the grant using the Black-Scholes option-pricing model and the related stock-based compensation expense is recognized over the vesting period during which an employee is required to provide service in exchange for the award. The fair value of the options granted to non-employees is measured and expensed as the options vest.

Restricted stock grants are stock awards that entitle the holder to receive shares of our common stock as the award vests over time. The fair value of each restricted stock grant is based on the fair market value price of common stock on the date of grant, and it is measured and expensed as the options vest.



Other (Expense) Income


Other (expense) income consists of income received or expenses incurred for activities outside of our core business. Other expense consists primarily of interest expense.




Provision for Income Taxes



Provision for income taxes consists of estimated income taxes due to the United States government and to the state tax authorities in jurisdictions in which we conduct business. In the case of a tax deferred asset, we reserve the entire value for future periods.



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Results of Operations


Three months ended March 31, 2021 compared to three months ended March 31, 2020




The following table sets forth our results of operations for each of the periods
set forth below:



                                  For the three months ended March 31,
                                 2021             2020            Change
Revenue                      $    788,869     $    146,816     $    642,053
Cost of goods sold                644,503          113,155          531,348
Gross profit                      144,366           33,661          110,705
Operating expenses:
Research and development        1,927,561          154,699        1,772,862
Sales and marketing               558,404          319,454          238,950
General and administrative      3,301,309        1,249,052        2,052,257
Total operating expenses        5,787,274        1,723,205        4,064,069
Loss from operations           (5,642,908 )     (1,689,544 )     (3,953,364 )
Other income and expense:
Other income, net                   9,926               16            9,910
Interest expense                     (851 )       (105,625 )        104,774
Net loss                     $ (5,633,833 )   $ (1,795,153 )   $ (3,838,680 )




Revenue


Revenue was $0.79 million for the three months ended March 31, 2021 as compared to $0.15 million for the same period in 2020, an increase of 437.3%, or $0.64 million. The increase in revenue was the result of an increase in sales of our vehicles, deriving from our MPA with Club Car, related powered-food box sales and other vehicle options.

Cost of goods sold and gross profit

Cost of goods sold increased by $0.53 million, or 469.6% for the three months ended March 31, 2021, as compared to the same period in 2020, corresponding with the increase in vehicle sales and an increase in time-of-order options for our vehicles and specialty products.

Gross margin percentage was 18.3% for the three months ended March 31, 2021, as compared to 22.9% for the three months ended March 31, 2020. The decrease in gross margin percentage in the core business was primarily due to an increase in tariffs on raw materials imported from China and an increase in shipping costs due to the global COVID-19 pandemic. Vehicle sales prices were increased in January 2021 to partially offset these cost increases.

Research and development expense

Research and development ("R&D") expense was $1.93 million for the three months ended March 31, 2021, as compared to $0.15 million for the same period in 2020, an increase of $1.78 million, or 1146.01%. The increase was primarily due to expenses related to personnel costs for our engineering, design, and research teams as we expanded the suite of option packages for our vehicles and initiated development of our next-generation three-wheeled vehicle. We had an increase in salaries and related expenses of $0.29 million, an increase of $1.18 million from R&D contracting for professional service and design costs and an increase in design and testing material of $0.25 million.



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Sales and marketing expense


Sales and marketing expense was $0.56 million for the three months ended March 31, 2021, as compared to $0.32 million for the same period in 2020, as we expanded our sales and marketing staff and marketing-related initiatives surrounding our next generation three-wheeled vehicle. Salaries and wages increased by $0.08 million and stock-based compensation increased by $0.03 million due to the addition of our sales and marketing resources. Discretionary marketing programs increased by $0.05 million and contracting for professional marketing services increased by $0.05 million. Additionally, depreciation expense for demonstration vehicles assigned to the sales and marketing team increased by $0.02 million as compared to the same period in 2020 due to a reclassification from general and administration expenses to sales and marketing expense for demonstration vehicles assigned to the sales and marketing team.

General and administrative expenses

The majority of our operating losses from continuing operations resulted from general and administrative expenses. General and administrative expenses consist primarily of costs associated with our overall operations and with being a public company. These costs include personnel, legal and financial professional services, insurance, investor relations, and compliance related fees. General and administrative expense was $3.30 million for the three months ended March 31, 2021, compared to $1.25 million for the same period in 2020, an increase of $2.05 million. Contracting for professional services increased by $0.34 million primarily a result of additional audit, legal and investor relations expenses incurred to support public reporting requirements. This amount was offset by the decrease of various expenses, primarily acquisition and financing cost of $0.35 million and a decrease in consulting services of $0.06 million. Board compensation expense increased by $0.12 million. Salaries and related costs increased by $0.28 million due to corporate expansion. Stock-based compensation expense increased by $1.53 million, primarily due to the expense of director and employee equity awards granted in 2020. Other public company-related expenses increased by $0.09 million.

Depreciation decreased by $0.01 million, primarily driven by fully depreciating the tooling for our AYRO 311 product line during 2020 and the reclassification of depreciation expense for demonstration vehicles assigned to the sales and marketing team due to our redirection of our marketing focus in-house. Rent decreased for the three months ended March 31, 2021 as compared to the same period in 2020 due to the accounting in 2020 for $0.02 million expense from contract liabilities and a rent payment towards the prior office space of $0.03 million.




Non-GAAP Financial Measure



We present Adjusted EBITDA because we consider it to be an important supplemental measure of our operating performance, and we believe it may be used by certain investors as a measure of our operating performance. Adjusted EBITDA is defined as income (loss) from operations before interest income and expense, income taxes, depreciation, amortization of intangible assets, amortization of discount on debt, impairment of long-lived assets, stock-based compensation expense and certain non-recurring expenses. Adjusted EBITDA is not a measurement of financial performance under generally accepted accounting principles in the United States, or GAAP.

Because of varying available valuation methodologies, subjective assumptions and the variety of equity instruments that can impact our non-cash operating expenses, we believe that providing a non-GAAP financial measure that excludes non-cash and non-recurring expenses allows for meaningful comparisons between our core business operating results and those of other companies, as well as providing us with an important tool for financial and operational decision making and for evaluating our own core business operating results over different periods of time.

Adjusted EBITDA may not provide information that is directly comparable to that provided by other companies in our industry, as other companies in our industry may calculate non-GAAP financial results differently, particularly related to non-recurring, unusual items.



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Adjusted EBITDA is not a measurement of financial performance under GAAP and should not be considered as an alternative to operating income or as an indication of operating performance or any other measure of performance derived in accordance with GAAP. We do not consider Adjusted EBITDA to be a substitute for, or superior to, the information provided by GAAP financial results.

Below is a reconciliation of Adjusted EBITDA to net loss to common stockholders for the three months ended March 31, 2021 and 2020.



                                        Three Months Ended
                                             March 31,
                                       2021             2020
Net Loss                           $ (5,633,833 )   $ (1,795,153 )
Depreciation and Amortization           124,198          114,275

Stock-based compensation expense 1,699,423 156,458 Amortization of Discount on Debt

              -           63,744
Interest expense                            851           28,436
Adjusted EBITDA                    $ (3,809,361 )   $ (1,432,240 )



Liquidity and Capital Resources

As of March 31, 2021, we had $91.49 million in cash and working capital of $92.96 million. As of December 31, 2020, we had $36.54 million in cash and working capital of $38.50 million. The increase in cash and working capital was primarily a result of our capital raising activities during the three months ended March 31, 2021.

Our sources of cash since inception have been predominantly from the sale of equity and debt.

On January 25, 2021, we entered into a securities purchase agreement with certain institutional and accredited investors, pursuant to which we agreed to issue and sell in a registered direct offering an aggregate of 3,333,334 shares at an offering price of $6.00 per share, for gross proceeds of $20.00 million before the deduction of fees and offering expenses. In a concurrent private placement, we sold to such investors warrants to purchase, at any time on or after July 26, 2021 and on or before July 26, 2023, additional shares of common stock equal to the full amount of the common stock it purchased at the initial closing, or an aggregate of 3,333,334 shares, at an exercise price of $6.93 per share.

On February 11, 2021, we entered into a securities purchase agreement with certain institutional and accredited investors, pursuant to which we agreed to issue and sell in a registered direct offering an aggregate of 4,400,001 shares of common stock at an offering price of $9.50 per share, for gross proceeds of $41.80 million before the deduction of fees and offering expenses. Each purchaser was also granted the option to purchase, on or before February 16, 2022, additional shares of common stock equal to the full amount of 75% of the common stock it purchased at the initial closing, or an aggregate of 3,300,001 shares, at a purchase price of $11.50 per share.

Pursuant to the Securities Purchase Agreement dated July 21, 2020, during the three months ended March 31, 2020, investors purchased 302,500 additional shares at an offering price of $5.00 per share, for gross proceeds of $1.5 million.

Our business is capital-intensive, and future capital requirements will depend on many factors, including our growth rate, the timing and extent of spending to support development efforts, the expansion of our sales and marketing teams, the timing of new product introductions and the continuing market acceptance of our products and services. We may also use capital for strategic acquisitions or transactions.



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We are 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. Based on the foregoing, management believes that the existing cash at March 31, 2021, will be sufficient to fund operations for at least the next twelve months following the date of this report.

© Edgar Online, source Glimpses

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Financials (USD)
Sales 2021 27,6 M - -
Net income 2021 -5,15 M - -
Net Debt 2021 - - -
P/E ratio 2021 -5,28x
Yield 2021 -
Capitalization 151 M 151 M -
Capi. / Sales 2021 5,46x
Capi. / Sales 2022 1,59x
Nbr of Employees 26
Free-Float 82,6%
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Technical analysis trends AYRO, INC.
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Mean consensus BUY
Number of Analysts 1
Last Close Price 4,28 $
Average target price 15,00 $
Spread / Average Target 250%
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Managers and Directors
Rodney C. Keller President, Chief Executive Officer& Director
Curtis Smith Chief Financial Officer
Joshua Nathaniel Silverman Chairman
Zvika Joseph Independent Director
Gregory T. Schiffman Independent Director
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