The following
unaudited interim financial statements of EZRaider Co. and its subsidiaries, referred to herein as the “Company,” “we,”
“us” or “our”) are included in this Quarterly Report on Form 10-Q (the “Quarterly Report”).
The accompanying unaudited
condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United
States and the rules of the Securities and Exchange Commission (“SEC”) and should be read in conjunction with the audited
financial statements and notes thereto contained in our Transition Report on Form 10-KT for the fiscal year ended December 31, 2021, filed
with the SEC on April 29, 2022. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for
a fair presentation of financial position and the results of operations for the periods presented have been reflected herein. The results
of operations for the periods presented are not necessarily indicative of the results to be expected for the full year.
See accompanying notes to condensed consolidated financial
statements.
See accompanying notes to condensed consolidated financial
statements.
See accompanying notes to condensed consolidated financial
statements.
See accompanying notes to condensed consolidated financial
statements.
Notes to Condensed Consolidated Financial Statements
For the Three Months Ended March 31, 2022
(Unaudited)
Note 1 – Organization and Nature of Operations
Organization
EZRaider Co. (f/k/a E-Waste Corp.) and subsidiary
(collectively, “EZRaider”, “we”, “us”, “our” or the “Company”) was organized
in the State of Florida on January 26, 2012, to develop an e-waste recycling business. The Company was not successful in its efforts and
ceased those operations.
On August 28, 2021, the Company filed a certificate
of amendment (the “Certificate of Amendment”) with the Secretary of State of the State of Florida in order to effectuate a
name change from E-Waste Corp. to EZRaider Co. The Certificate of Amendment became effective on September 3, 2021 (See Note 8).
On September 14, 2021, our wholly owned subsidiary,
E-Waste Acquisition Corp., a Delaware corporation, merged with and into EZRaider Global, Inc., a private Nevada corporation (“EZ
Global”). EZ Global was the surviving corporation in the Merger and became our wholly owned subsidiary. All of the outstanding shares
of capital stock of EZ Global, were exchanged for shares of our common stock. As a result of the Merger, we discontinued our prior
activities, which consisted primarily of seeking a business for a merger or acquisition, and acquired the business of EZ Global, and will
continue the existing business operations of EZ Global, and its wholly owned subsidiary, EZ Raider, LLC, a Washington limited liability
company (“EZ LLC”), as a publicly-traded company under the name “EZRaider Co.” (See Note 8).
These unaudited condensed consolidated financial statements
should be read in conjunction with the consolidated financial statements and related notes included in our Annual Report on Form 10-KT
for the ten months ended December 31, 2021, filed with the SEC on April 29, 2022.
Nature of Operations
The Company sells electric stand-up ATV vehicles,
known as “EZRaider Vehicles,” and accessories to government and private sector customers in multiple countries. EZRaider Vehicles
feature an innovative technology platform that combines dynamic, proprietary suspension with a lightweight, narrow-profile design that
can traverse rugged off-road terrain while being small enough to fit through any normal household doorway. It is frequently referred to
as an “all-terrain surfer”.
There are 3 vehicle models currently offered –
LW, HD2 and HD4. EZ Raider Vehicles come in both 2wd and 4wd options. Machines come with two battery options – a 1740-Watt battery
which provides up to 30 miles of range and the 3000-Watt battery that provides up to 50 miles of range. Range can be significantly increased
with an optional additional battery pack. The EZ Raider trailer, or Ecart, is also equipped with its own 3000-Watt battery. With all additional
battery packs available, EZ Raider Vehicles can have a range of up to 130 miles.
The Company’s products appeal to a wide variety
of customers for government, commercial and private uses. EZ Raider Vehicles can be accessorized to fit the needs of the customer, including,
but not limited to, remote control robotics for autonomous operation, agricultural spraying, golf, un-manned airport runway cleaning,
off-road adventure and sport, facilities maintenance, security, law enforcement, fire, search and rescue (autonomous or manned), urban
commuting & errands, disabled person mobility, hunting & fishing, tourism, military troop mobility, border patrol, and micro-delivery.
The Company has historically promoted its products
directly to the public. The use of existing ATV, car, or motorcycle dealers/distribution networks has been minimal.
In 2020, the Company experienced significant distribution
and sales set-backs due to the Covid-19 pandemic. Lockdowns were implemented in both Israel and the United States just as the spring/summer
sales season was beginning, causing the cancelation of orders worldwide. Sales growth resumed in 2021, but supply of machines was impeded
by the global supply chain backlog, causing extensive delays in delivering machines to customers.
- 9 -
Impact of COVID-19
The ongoing COVID-19 global and national health emergency
has disrupted economies and financial markets world-wide. In March 2020, the World Health Organization declared the COVID-19 outbreak
a pandemic. The spread of COVID-19 has caused illness, quarantines, cancellation of events and travel, business and school shutdowns,
reduction in business activity and financial transactions, labor shortages, supply chain interruptions and overall economic and financial
market instability. The COVID-19 pandemic significantly impacted the Company’s supply chain, distribution centers, logistics and
other service providers.
In addition, a severe prolonged economic downturn
could result in a variety of risks to the business, including weakened demand for products and services and a decreased ability to raise
additional capital when needed on acceptable terms, if at all. As the situation evolves, the Company will continue to closely monitor
market conditions and respond accordingly.
To date, the Company has experienced significant economic
impact due to COVID-19, however, efforts are being made to secure additional capital while also executing operations.
Basis of Presentation
The accompanying consolidated financial statements
have been prepared in accordance with accounting principles generally accepted in the United States.
Liquidity, Going Concern and Management’s
Plans
These consolidated financial statements have been
prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the
normal course of business.
As reflected in the accompanying consolidated financial
statements, for the three months ended March 31, 2022 the Company had:
● Net
loss of $304,705; and
● Net
cash used in operations was $571,546.
Additionally, at March 31, 2022, the Company had:
● Accumulated
deficit of $3,099,497;
● Stockholders’
equity of $2,009,771; and
● Working
capital deficit of $1,908,545.
We manage liquidity risk by reviewing, on an ongoing
basis, our sources of liquidity and capital requirements. The Company had no cash on hand at March 31, 2022.
The Company expects business operations to generate
sufficient revenues and positive cash flows from operations to meet its current obligations. However, the Company is seeking to raise
debt or equity-based capital at favorable terms, though such terms are not certain. Currently, the Company expects to incur losses from
operations and have negative cash flows from operating activities for the near-term.
The Company has incurred significant losses since
its inception and has not demonstrated an ability to generate sufficient revenues from the sales of its products and services to achieve
profitable operations. There can be no assurance that profitable operations will ever be achieved, or if achieved, could be sustained
on a continuing basis. In making this assessment we performed a comprehensive analysis of our current circumstances including: our financial
position, our cash flows and cash usage forecasts for the twelve months ended December 31, 2022, and our current capital structure including
equity-based instruments and our obligations and debts.
During the three months ended March 31, 2022, the
Company has partially satisfied its obligations from the sale of common stock ($95,000); however, there is no assurance that such successful
efforts will continue during the twelve months subsequent to the date these consolidated financial statements are issued.
If the Company does not obtain additional capital,
the Company will be required to reduce the scope of its business development activities or cease operations. The Company continues to
explore obtaining additional capital financing and the Company is closely monitoring its cash balances, cash needs, and expense levels.
- 10 -
These factors create substantial doubt about the Company’s
ability to continue as a going concern within the twelve-month period subsequent to the date that these consolidated financial statements
are issued. The consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue
as a going concern. Accordingly, the consolidated financial statements have been prepared on a basis that assumes the Company will continue
as a going concern and which contemplates the realization of assets and satisfaction of liabilities and commitments in the ordinary course
of business.
Management’s strategic plans include the
following:
| |
● |
Execute the Share Purchase Agreement and related extensions to fully acquire D.S Raider (as further described in this Report); |
| |
|
|
| |
● |
Execute business operations during fiscal year December 31, 2022; |
| |
|
|
| |
● |
Pursue additional debt and equity capital for growth and expansion; and |
| |
|
|
| |
● |
Identify unique market opportunities that represent potential positive short-term cash flow. |
Note 2 - Summary of Significant Accounting Policies
Principles of Consolidation
These consolidated financial statements have been
prepared in accordance with U.S. GAAP and include the accounts of the Company and its inactive, wholly owned subsidiary. All intercompany
transactions and balances have been eliminated.
Use of Estimates
Preparing financial statements in conformity with
U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure
of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reported period. Actual
results could differ from those estimates, and those estimates may be material.
Changes in estimates are recorded in the period in
which they become known. The Company bases its estimates on historical experience and other assumptions, which include both quantitative
and qualitative assessments that it believes to be reasonable under the circumstances.
Significant estimates during the three months ended
March 31, 2022 and 2021, include stock-based compensation, uncertain tax positions, and the valuation allowance on deferred tax assets.
Business Segments and Concentrations
The Company uses the “management approach”
to identify its reportable segments. The management approach requires companies to report segment financial information consistent with
information used by management for making operating decisions and assessing performance as the basis for identifying the Company’s
reportable segments. The Company manages its business as one reportable segment.
Fair Value of Financial Instruments
The Company accounts for financial instruments under
Financial Accounting Standards Board (“FASB”) ASC 820, Fair Value Measurements. ASC 820 provides a framework for measuring
fair value and requires disclosures regarding fair value measurements. Fair value is defined as the price that would be received to sell
an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, based on the Company’s
principal or, in absence of a principal, most advantageous market for the specific asset or liability.
The Company uses a three-tier fair value hierarchy
to classify and disclose all assets and liabilities measured at fair value on a recurring basis, as well as assets and liabilities measured
at fair value on a non-recurring basis, in periods subsequent to their initial measurement. The hierarchy requires the Company to use
observable inputs when available, and to minimize the use of unobservable inputs, when determining fair value.
- 11 -
The three tiers are defined as follows:
| |
● |
Level 1 - Observable inputs that reflect quoted market prices (unadjusted) for identical assets or liabilities in active markets; |
| |
|
|
| |
● |
Level 2 - Observable inputs other than quoted prices in active markets that are observable either directly or indirectly in the marketplace for identical or similar assets and liabilities; and |
| |
|
|
| |
● |
Level 3 - Unobservable inputs that are supported by little or no market data, which require the Company to develop its own assumptions. |
The determination of fair value and the assessment
of a measurement’s placement within the hierarchy requires judgment. Level 3 valuations often involve a higher degree of judgment
and complexity. Level 3 valuations may require the use of various cost, market, or income valuation methodologies applied to unobservable
management estimates and assumptions. Management’s assumptions could vary depending on the asset or liability valued and the valuation
method used. Such assumptions could include estimates of prices, earnings, costs, actions of market participants, market factors, or the
weighting of various valuation methods. The Company may also engage external advisors to assist us in determining fair value, as appropriate.
Although the Company believes that the recorded fair
value of our financial instruments is appropriate, these fair values may not be indicative of net realizable value or reflective of future
fair values.
The Company’s financial instruments, including
cash, accounts receivable, and accounts payable and accrued expenses, are carried at historical cost. At March 31, 2022 and December 31,
2021, the carrying amounts of these instruments approximated their fair values because of the short-term nature of these instruments.
ASC 825-10 “Financial Instruments” allows
entities to voluntarily choose to measure certain financial assets and liabilities at fair value (“fair value option”). The
fair value option may be elected on an instrument-by-instrument basis and is irrevocable unless a new election date occurs. If the fair
value option is elected for an instrument, unrealized gains and losses for that instrument should be reported in earnings at each subsequent
reporting date. The Company did not elect to apply the fair value option to any outstanding financial instruments.
Cash and Cash Equivalents
For purposes of the consolidated statements of cash
flows, the Company considers all highly liquid instruments with a maturity of three months or less at the purchase date and money market
accounts to be cash equivalents. At March 31, 2022 and December 31, 2021, the Company did not have any cash equivalents.
Concentration of Credit Risks
The Company at times has cash in banks in excess of
FDIC insurance limits. At March 31, 2022 and December 31, 2021, the Company had approximately $0 and $115,000, respectively, of cash in
excess of FDIC insurance limits.
Accounts Receivable
Accounts receivable are stated at the amount management
expects to collect from outstanding customer balances. Credit is extended to customers based on an evaluation of their financial condition
and other factors. Interest is not accrued on overdue accounts receivable. The Company does not require collateral.
Management periodically assesses the Company’s
accounts receivable and, if necessary, establishes an allowance for estimated uncollectible amounts. The Company provides an allowance
for doubtful accounts based upon a review of the outstanding accounts receivable, historical collection information and existing economic
conditions. Accounts determined to be uncollectible are charged to operations when that determination is made.
Allowance for doubtful accounts was $0 and $26,677
at March 31, 2022 and December 31, 2021, respectively.
For the three months ended March 31, 2022, the Company
recorded a bad debt recovery of $43,069.
- 12 -
Inventory
Inventory consists of components held for assembly
and finished goods held for resale. Inventory is valued at lower of cost or net realizable value on a first-in, first-out basis. The Company’s
policy is to record a reserve for technological obsolescence or slow-moving inventory items. The Company only carries finished goods to
be shipped to customers. All existing inventory is considered current and usable.
The Company recorded no reserve for slow-moving or
obsolete inventory for the three months ended as of March 31, 2022 and December 31, 2021.
Impairment of Long-lived Assets
Management evaluates the recoverability of the Company’s
identifiable intangible assets and other long-lived assets when events or circumstances indicate a potential impairment exists, in accordance
with the provisions of ASC 360-10-35-15 “Impairment or Disposal of Long-Lived Assets.” Events and circumstances considered
by the Company in determining whether the carrying value of identifiable intangible assets and other long-lived assets may not be recoverable
include but are not limited to: significant changes in performance relative to expected operating results; significant changes in the
use of the assets; significant negative industry or economic trends; and changes in the Company’s business strategy. In determining
if impairment exists, the Company estimates the undiscounted cash flows to be generated from the use and ultimate disposition of these
assets.
If impairment is indicated based on a comparison of
the assets’ carrying values and the undiscounted cash flows, the impairment to be recognized is measured as the amount by which
the carrying amount of the assets exceeds the fair value of the assets.
Property and Equipment
Expenditures for repair and maintenance which do not
materially extend the useful lives of property and equipment are charged to operations. When property and equipment is sold or otherwise
disposed of, the cost and related accumulated depreciation are removed from the respective accounts with the resulting gain or loss reflected
in operations.
Management reviews the carrying value of its property
and equipment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable.
There were no impairment losses for the three months
ended March 31, 2022 and 2021.
Paycheck Protection Program Loans
The Company records Paycheck Protection Program (“PPP”)
loan proceeds in accordance with ASC 470, Debt. Debt is extinguished when either debtor pays the creditor or the debtor is legally released
from being the primary obligor, either judicially or by the creditor.
Revenue Recognition
The Company recognizes revenue according to ASC 606,
Revenue from Contracts with Customers. When the customer obtains control over the promised goods or services, the Company records revenue
in the amount of consideration that can be expected to be received in exchange for those goods and services.
During the three months ended March 31, 2022 and 2021,
the Company primarily recognized revenues from the sale of its products, which occurs at a point in time, which is when the customer takes
possession.
The Company determines revenue recognition based upon
the following five (5) criteria:
Step 1 - Identification
of the contract with the customer
Step 2 - Identification
of promised goods and services and evaluation of whether the promised goods and services are distinct performance obligations
Step 3 - Determination
of the transaction price
Step 4 - Allocation
of the transaction price to distinct performance obligations
Step 5 - Attribution
of revenue for each distinct performance obligation
- 13 -
We apply judgment in determining the customer’s
ability and intention to pay, which is based on a variety of factors including the customer’s historical payment experience or,
in the case of a new customer, published credit or financial information pertaining to the customer.
If a contract includes multiple promised goods or
services, we apply judgment to determine whether the promised goods or services are capable of being distinct and are distinct within
the context of the contract. If these criteria are not met, the promised goods or services are accounted for as a combined performance
obligation. We determine the transaction price based on the consideration which we will be entitled to receive in exchange for transferring
goods or services to our customer.
We recognize revenue at the time that the related
performance obligation is satisfied by transferring the promised goods or services to our customer.
Remaining Performance Obligations
A performance obligation is a promise in a contract
to transfer a distinct good or service to the customer and is the unit of account under Topic 606. The transaction price is allocated
to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied by transferring
the promised good or service to the customer. The Company identifies and tracks the performance obligations at contract inception so that
the Company can monitor and account for the performance obligations over the life of the contract.
Remaining performance obligations represent the transaction
price of orders for which products have not been delivered or services have not been performed. As of March 31, 2022 and December 31,
2021, the Company had no remaining performance obligations.
Contract Liabilities (Deferred Revenue)
The Company recognizes a contract liability when 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 to a customer for which the Company has received consideration,
or an amount of consideration due from the customer.
At March 31, 2022 and December 31, 2021, deferred
revenues were $943,126 and $912,464, respectively.
Cost of Sales
Cost of sales predominantly represents job-related
materials and supplies.
Advertising Costs
Advertising costs are expensed as incurred. Advertising
costs are included as a component of general and administrative expense in the consolidated statements of operations.
The Company had advertising costs of $12,066 and $5,016
during the three months ended March 31, 2022 and 2021, respectively.
Stock-Based Compensation
We account for our stock-based compensation under
ASC 718 “Compensation – Stock Compensation” using the fair value-based method. Under this method, compensation cost
is measured at the grant date based on the value of the award and is recognized over the service period, which is usually the vesting
period. This guidance establishes standards for the accounting for transactions in which an entity exchanges it equity instruments for
goods or services. It also addresses transactions in which an entity incurs liabilities in exchange for goods or services that are based
on the fair value of the entity’s equity instruments or that may be settled by the issuance of those equity instruments.
We use the fair value method for equity instruments
granted to non-employees and use the Black-Scholes model for measuring the fair value of options. The stock based fair value compensation
is determined as of the date of the grant or the date at which the performance of the services is completed (measurement date) and is
recognized over the vesting periods.
- 14 -
When determining fair value, the Company considers
the following assumptions in the Black-Scholes model:
● Exercise
price,
● Expected
dividends,
● Expected
volatility,
● Risk-free
interest rate; and
● Expected
life of option.
Common
Stock Awards
The Company may grant common stock awards to non-employees
in exchange for services provided. The Company measures the fair value of these awards using the fair value of the services provided or
the fair value of the awards granted, whichever is more reliably measurable. The fair value measurement date of these awards is generally
the date the performance of services is complete. The fair value of the awards is recognized on a straight-line basis as services are
rendered.
The share-based payments related to common stock awards
for the settlement of services provided by non-employees is recorded on the statement of operations in the same manner and charged to
the same account as if such settlements had been made in cash.
Stock Warrants
In connection with certain financing, consulting and
collaboration arrangements, the Company may issue warrants to purchase shares of its common stock. The outstanding warrants are standalone
instruments that are not puttable or mandatorily redeemable by the holder and are classified as equity awards. The Company measures the
fair value of the awards using the Black-Scholes option pricing model as of the measurement date. Warrants issued in conjunction with
the issuance of common stock are initially recorded at fair value as a reduction in additional paid-in capital of the common stock issued.
All other warrants are recorded at fair value as expense over the requisite service period or at the date of issuance if there is not
a service period.
Income Taxes
The Company
accounts for income taxes under FASB Codification Topic 740-10-25 (“ASC 740-10-25”). Under ASC 740-10-25, deferred tax assets
and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts
of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under
ASC 740-10-25, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes
the enactment date.
Basic and Diluted Earnings (Loss) per Share
Pursuant to ASC 260-10-45, basic loss per common share
is computed by dividing net loss by the weighted average number of shares of common stock outstanding for the periods presented. Diluted
loss per share is computed by dividing net loss by the weighted average number of shares of common stock, common stock equivalents and
potentially dilutive securities outstanding during the period. Potentially dilutive common shares may consist of common stock issuable
for stock options and warrants (using the treasury stock method), convertible notes and common stock issuable. These common stock equivalents
may be dilutive in the future.
The computation of basic and diluted loss per share
for March 31, 2022 and 2021, excludes the common stock equivalents of the following potentially dilutive securities because their inclusion
would be anti-dilutive.
As of March 31, 2022 the Company had sufficient authorized
shares of common stock to settle any potential conversions of its common stock equivalents.
- 15 -
Related Parties
Parties are considered to be related to the Company
if the parties, directly or indirectly, through one or more intermediaries, control, are controlled by, or are under common control with
the Company. Related parties also include principal owners of the Company, its management, members of the immediate families of principal
owners of the Company and its management and other parties with which the Company may deal with if one party controls or can significantly
influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully
pursuing its own separate interests.
Recent Accounting Standards
All newly issued accounting pronouncements but not
yet effective have been deemed either immaterial or not applicable.
Equity Securities Without a Readily Determinable
Fair Value
Certain equity securities are carried at cost as these
securities did not have a readily determinable fair value. There were no observable price changes in orderly transactions for the identical
or a similar investment of the same issuer as of March 31, 2022 and December 31, 2021.
Reclassifications
Certain prior period amounts have been reclassified
for consistency with the current period presentation. These reclassifications had no effect on the unaudited condensed consolidated results
of operations, stockholders’ deficit, or cash flows.
Note 3 - Reverse Recapitalization
On September 14, 2021, the Company’s wholly
owned acquisition subsidiary merged with and into EZ Global, with EZ Global being the surviving corporation, in a transaction treated
as a reverse recapitalization (the “Merger”). As a result of the Merger, EZ Global became the Company’s wholly owned
subsidiary. At the time of the Merger, the Company had insignificant operations relative to the EZ Global operations acquired and is considered
the successor to substantially all of the operations of EZ Global. After the Merger, the officers and directors of EZ Global became officer
and directors of the Company.
In the reverse recapitalization, the Company issued
28,550,000 shares of common stock to the shareholders of EZ Global, in exchange for all issued and outstanding shares of EZ Global. The
share exchange resulted in a change in control of the Company. Due to the recapitalization, these shares are considered issued and outstanding
as of the earliest period presented.
The transaction also requires a recapitalization of
EZ Global. Since the shareholders of EZ Global acquired a controlling voting interest as a result of the Merger, EZ Global was deemed
the accounting acquirer, while the Company was deemed the legal acquirer. The historical financial statements of the Company are those
of EZ Global and of the consolidated entities from the date of recapitalization.
Prior to the recapitalization, in May 2021, the Company
had loaned $2,000,000 to EZ Global. The loan bore interest at 5%, was unsecured, and due in November 2021. On September 14, 2021, in connection
with the recapitalization, the loan and related accrued interest of $2,015,493 was forgiven. Since the transaction occurred with a related
party, accordingly, there is no loss recorded in the consolidated statements of operations. As a result, the Company has recorded a reduction
to additional paid-in capital.
The Company did not recognize goodwill or any intangible
assets in connection with the transaction. Additionally, since the transaction is considered a reverse recapitalization with a public
shell corporation, the presentation of pro-forma financial information was not required.
- 16 -
Note 4 – Property and Equipment
At March 31, 2022 and December 31, 2021, property
and equipment, net, was as follows:
| |
|
|
|
|
|
Estimated Useful |
|
| |
|
March 31, 2022 |
|
December 31, 2021 |
|
Lives (Years) |
|
| |
|
|
|
|
|
|
|
| Automobiles |
|
$ |
115,684 |
|
$ |
115,684 |
|
5 |
|
| Camera equipment |
|
|
16,493 |
|
|
16,493 |
|
5 |
|
| |
|
|
132,177 |
|
|
132,178 |
|
|
|
| Accumulated depreciation |
|
|
63,861 |
|
|
50,758 |
|
|
|
| Property and equipment - net |
|
$ |
68,316 |
|
$ |
81,419 |
|
|
|
Depreciation expense for the three months ended March
31, 2022 and 2021, was $13,103 and $4,122, respectively.
Note 5 – Securities
Equity Securities Without a Readily Determinable
Fair Value
At December 31, 2021, the Company paid deposits of
$3,850,000 to D.S. Raider, Ltd., an Israeli company (“D.S Raider”) in connection with a potential future acquisition of D.S
Raider under the Share Purchase Agreement between the parties (the “D.S Raider SPA”). On October 11, 2021, the Company converted
the deposits into 295,947 ordinary shares of D.S. Raider.
On December 30, 2021, the Company signed a further
extension to the D.S Raider SPA, extending the date for closing from December 31, 2021 to March 15, 2022. As part of this extension, exclusive
sales and distribution rights for EZ Global to sell D.S Raider products for the North American market were extended through January 31,
2023. Negotiations about a possible combination of the two companies is ongoing.
In addition, as part of the extension, EZ Global was
required to secure $1,600,000 of purchase orders for EZRaider Vehicles and pay D.S Raider a down payment of $800,000, representing 50%
of the purchase price for the purchase orders, no later than January 17, 2022. The $800,000 payment was paid to D.S Raider on January
13, 2022.
The Company held equity securities without a readily
determinable fair values and measured at cost of $3,850,000 at March 31, 2022.
Note 6 – Notes Payable - Related Party
The following represents a summary of the Company’s
notes payable and the related key terms and outstanding balances at December 31, 2021 and February 28, 2021, respectively:
| Terms |
|
Note Payable |
|
| |
|
|
|
| Issuance date of note |
|
|
September 25, 2020 |
|
| Maturity date |
|
|
September 25, 2021 |
|
| Interest rate |
|
|
8% |
|
| Collateral |
|
|
Unsecured |
|
| |
|
|
|
|
| Balance - February 29, 2020 |
|
$ |
— |
|
| Proceeds |
|
|
255,000 |
|
| Balance - February 28, 2021 |
|
|
255,000 |
|
| Repayments |
|
|
(255,000 |
) |
| Balance - December 31, 2021 |
|
$ |
— |
|
| Balance - March 31, 2022 |
|
$ |
— |
|
- 17 -
Note 7 – Convertible Notes Payable
The following represents a summary of the Company’s
convertible notes payable and the related key terms and outstanding balances at March 31, 2022 and December 31, 2021, respectively:
| |
|
|
|
|
|
|
|
|
|
|
| Terms |
|
Notes Payable |
|
Notes Payable |
|
Total |
|
| |
|
|
|
|
|
|
|
| Issuance date of notes |
|
January 2021 |
|
January 1, 2021 |
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
| Maturity dates |
|
February 2022 or the closing of the proposed acquisition of D.S. Raider LTD. |
|
March 16th, 2022 or the closing of the proposed acquisition of D.S. Raider LTD |
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
| Interest rate |
|
8% |
|
5% |
|
|
|
|
| Collateral |
|
All assets |
|
Unsecured |
|
|
|
|
| Conversion rate |
|
35% discount to market |
|
35% discount to market |
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
| Balance - February 29, 2020 |
|
$ |
— |
|
$ |
— |
|
$ |
— |
|
| Proceeds |
|
|
500,000 |
|
|
50,000 |
|
|
550,000 |
|
| Balance - February 28, 2021 |
|
|
500,000 |
|
|
50,000 |
|
|
550,000 |
|
| Proceeds |
|
|
— |
|
|
50,000 |
|
|
50,000 |
|
| Conversion of debt into equity - recapitalization |
|
|
— |
|
|
(100,000 |
) |
|
(100,000 |
) |
| Balance - December 31, 2021 |
|
$ |
500,000 |
|
$ |
— |
|
$ |
500,000 |
|
| No activity |
|
|
|
|
|
|
|
|
| Balance - March 31, 2022 |
|
$ |
500,000 |
|
$ |
— |
|
$ |
500,000 |
|
On January 8, 2022, a Secured Convertible Promissory
Note the Company’s subsidiary EZRaider LLC issued to Cooper DuBois, in the principal amount of $500,000, became due and payable.
The note is secured against all of EZRaider LLC’s assets. On June 7, 2022 the Company issued 810,384 in consideration for the extension
of the maturity date of the promissory notes until July 8, 2022.
The Company issued a $220,254, twelve-month (12),
unsecured, convertible note on May 27, 2022, which is due May 27, 2023. The note represents the amount of accrued and unpaid legal fees
owed by the Company. The convertible note bears interest at 10%. The note has a conversion price of $1.00 per share. The note bears a
default interest rate of 15% (See Note 14).
Note 8 – Convertible Notes Payable –
Related Party
The following represents a summary of the Company’s
convertible notes payable and the related key terms and outstanding balances at March 31, 2022 and December 31, 2021, respectively:
| |
|
|
|
|
| |
|
Convertible |
|
| Terms |
|
Notes Payable - Related Party |
|
| |
|
|
|
| Issuance date of note |
|
January 2021 |
|
| |
|
|
|
|
| Maturity dates |
|
February 2022 or the closing of the
proposed acquisition of D.S. Raider LTD. |
|
| |
|
|
|
|
| Interest rate |
|
8% |
|
| Collateral |
|
Unsecured |
|
| Conversion rate |
|
35% discount to market |
|
| |
|
|
|
|
| Balance - February 29, 2020 |
|
$ |
20,000 |
|
| Proceeds |
|
|
40,000 |
|
| Balance - February 28, 2021 |
|
|
60,000 |
|
| Stock issued in connection with recapitalization |
|
|
(60,000 |
) |
| Balance - December 31, 2021 |
|
$ |
— |
|
| Balance - March 31, 2022 |
|
$ |
— |
|
- 18 -
Note 9 – Note Payable – Government
Loan
(A) Payroll
Protection Program (“PPP”)
On April 30, 2020, we executed an unsecured promissory
note for $13,215 under the PPP.
Interest is deferred for the first nine months of
the term of the loan. These loans require equal payments of principal and interest over the eighteen (18) months following the interest
deferral period.
The promissory note evidencing this loan contains
customary events of default relating to, among other things, payment defaults, breach of representations and warranties, or provisions
of the promissory note. The occurrence of an event of default may result in the repayment of all amounts outstanding, collection of all
amounts owing from the Company, and/or filing suit and obtaining judgment against the Company.
On February 7, 2022, the loan was a portion of the
loan was forgiven by the SBA. As a result, the Company will record a gain on debt forgiveness of PPP loan in the amount of $12,489 in
the first quarter of 2022.
(B) Conditional
Loan Forgiveness
Under the terms of the PPP loan program, all or a
portion of a loan may be forgiven upon request from borrower to lender, provided the loan proceeds are used in accordance with the terms
of the Coronavirus Aid, Relief and Economic Security Act (the “Act” or “CARES”), borrower is not in default under
the loan or any of the loan documents, and borrower has provided documentation to lender supporting such request for forgiveness that
includes verifiable information on borrower’s use of the loan proceeds, to lender’s satisfaction, in its sole and absolute
discretion. Currently, the Company believes these loans will be forgiven, however, there is a significant uncertainty that prevents a
final determination from being made as of the date of these financial statements.
The following is a summary of the PPP loan:
| |
|
PPP |
|
| Terms |
|
SBA |
|
| |
|
|
|
| Issuance date of SBA loan |
|
May 2020 |
|
| Maturity date |
|
April 2022 |
|
| Interest rate |
|
1% |
|
| Collateral |
|
Unsecured |
|
| |
|
|
|
|
| Balance – December 31, 2021 |
|
|
13,215 |
|
| Loan forgiveness – February 7, 2022 |
|
|
(12,489 |
) |
| Balance – March 31, 2022 |
|
$ |
726 |
|
On February 7, 2022, the loan was a portion of the
loan was forgiven by the SBA. As a result, the Company will record a gain on debt forgiveness of PPP loan in the amount of $12,489 in
the first quarter of 2022.
- 19 -
Note 10 – Loan Payable – Other
The following represents a summary of the Company’s
loan payable – other and the related key terms and outstanding balances at March 31, 2022 and December 31, 2021, respectively:
| Terms |
|
Notes Payable |
|
Note Payable |
|
Note Payable |
|
Note Payable |
|
Note Payable |
|
Note Payable |
|
Total |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Issuance date of notes |
|
March 2020 |
|
January 2020 |
|
November 2020 |
|
December 1, 2021 |
|
December 9, 2021 |
|
December 9, 2021 |
|
|
|
| Maturity dates |
|
September 16, 2022 7 |
|
January 2025 |
|
November 2021 |
|
July 8, 2022 6 |
|
July 8, 2022 6 |
|
July 8, 2022 6 |
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Interest rate |
|
7.5% |
|
6.2% |
|
6% |
|
6% |
|
6% |
|
6% |
|
|
|
| Collateral |
|
Unsecured |
|
Secured |
|
Unsecured |
|
Unsecured |
|
Unsecured |
|
Unsecured |
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Balance - February 29, 2020 |
|
$— |
|
$46,888 |
|
$— |
|
$— |
|
$— |
|
$— |
|
$46,888 |
|
| Proceeds |
|
220,956 |
1,2 |
— |
|
150,000 |
|
— |
|
— |
1,2 |
— |
|
370,956 |
|
| Repayments |
|
— |
|
(8,591 |
) |
— |
|
— |
|
— |
|
— |
|
(8,591 |
) |
| Balance - February 28, 2021 |
|
220,956 |
|
38,297 |
|
150,000 |
|
— |
|
— |
|
— |
|
409,253 |
|
| Proceeds |
|
50,000 |
|
— |
|
— |
|
25,000 |
4 |
50,000 |
3 |
50,000 |
5 |
175,000 |
|
| Repayments |
|
— |
|
(7,838 |
) |
(150,000 |
) |
— |
|
— |
|
— |
|
(157,838 |
) |
| Balance - December 31, 2021 |
|
$270,956 |
|
$30,459 |
|
$— |
|
$25,000 |
|
$50,000 |
|
$50,000 |
|
$426,415 |
|
| March 31, 2022 activity - none |
|
— |
|
(2,738 |
) |
— |
|
— |
|
— |
|
— |
|
— |
|
| Balance - December 31, 2021 |
|
$270,956 |
|
$27,712 |
|
$— |
|
$25,000 |
|
$50,000 |
|
$50,000 |
|
$423,676 |
|
| 1 |
Debt is personally guaranteed by the Company’s Chief Executive Officer for up to $100,000. |
| |
|
| 2 |
In consideration for the 6% Note, the Company issued the holder a five percent equity interest in the Company, an option to acquire an additional fifteen percent equity in the Company if the holder met certain sales goals (“Supplemental Incentive Interests”), and a personal guarantee for a minimum of $100,000 of the Note by the Company’s majority member and manager. |
| |
|
| 3 |
In connection with the note, the Company issued 5,000 shares of Company's common stock having a fair value of $7,500 ($1.50/share). Fair value of the stock was based upon recent third-party cash offering prices, which represented the best evidence of fair value. |
| |
|
| 4 |
In connection with the note, the Company issued 2,500 shares of Company's common stock having a fair value of $3,750 ($1.50/share). Fair value of the stock was based upon recent third-party cash offering prices, which represented the best evidence of fair value. |
| |
|
| 5 |
In connection with the note, the Company issued 5,000 shares of Company's common stock having a fair value of $7,500 ($1.50/share). Fair value of the stock was based upon recent third-party cash offering prices, which represented the best evidence of fair value. |
| |
|
| 6 |
On March 15, 2022, the Company entered into amendments to certain unsecured 6% promissory notes (the “Amendments”) with three investors and issued additional 12,500 shares of common stock to these investors in consideration for the extension of the maturity date of the promissory notes until July 8, 2022. |
| |
|
| 7 |
On March 15, 2022, the Company entered into amendments to certain unsecured 6% promissory notes (the “Amendments”) to increase the interest rate to 7.5% and due date to September 16, 2022. |
Pursuant to the 6% Note, the Company shall pay the
holder interest only payments of $1,800 for the first three months, and thereafter shall pay $11,800 per month for months four to six,
and $30,034 per month thereafter until maturity.
As part of the Company’s overall capital initiatives,
a bridge loan offering of up to a maximum of $300,000 was initiated to facilitate working capital and other expenses associated with the
ongoing efforts to raise capital. A total of $125,000 was raised through this bridge loan offering from three investors, which will be
paid back to the lenders upon subsequent capital raises in the aggregate of $500,000. An aggregate of 12,500 shares were issued to the
lenders as part of this bridge loan offering, having a fair value of $18,750 ($1.50 per share). Fair value of the stock was based upon
recent third-party cash offering prices, which represented the best evidence of fair value.
- 20 -
On July 11, 2021, the Company and holder amended the
terms of the original agreement follows: (i) the maturity date was extended from March 16, 2021 to March 16, 2022 or the date the Company
completes the acquisition of D.S Raider, whichever comes sooner, (ii) the parties acknowledged there is no further Supplemental Incentive
Interests as the goals were not met, and (iii) repayment of the 6% Note shall be paid by Company on or prior to the Maturity Date, as
amended, in one balloon payment all existing defaults were waived; in exchange, the Lender waived all claims with respect to any breach,
default or event of default of the Note.
The Company executed short term loans for $39,550
with Shopify Capital Inc. The loans are used to finance sales and are collateralized by accounts receivable and all accounts of the Company.
Interest accrued at 17% and the loans required payments from sales. During the ten months ended December 31, 2021, the $39,550 was repaid.
Between January 18, 2021 and January 25, 2021, the
Company entered into two unsecured convertible notes for an aggregate amount of $160,000 from two investors. The notes accrue interest
at 5% per annum and are convertible at a 35% discount to price of financing used to complete the acquisition of D.S Raider. The Company
accrued interest of $2,842 as of May 31, 2021.
Note 11 – Advances – Related Party
During the three months ended March 31, 2022, the
majority shareholder was owed $21,078. The loans are non-interest bearing, unsecured and due on demand. As of March 31, 2022, and December
31, 2021, the loan balance is $21,078 and $0, respectively.
Note 12 – Commitments
Operating Lease Agreement
On July 15, 2021, the Company renewed leased offices
located in Kent, WA. The net monthly payment is $7,800. The leases expire on August 31, 2022.
For the three months ended March 31, 2022, and 2021,
the Company recorded rent expense of $28,014 and $23,196, respectively.
Rent expense is included as a component of general
and administrative expenses on the accompanying consolidated statements of operations.
Employment Agreements – Related Party
On May 1, 2021, the Company entered into an employment
agreement with its Chief Executive Officer. The initial term of the agreement is through May 1, 2022, at an annual salary of $250,000
with $75,000 first year bonus and a minimum of 30% raise after first year of employment. The Company will also pay up to $12,000 annually
in expenses. At March 31, 2022, the Company has expensed $62,500 as a component of general and administrative expenses in the consolidated
statements of operations.
On November 18, 2021, the Company entered into an
employment agreement with its Chief Operating Officer. The initial term of the agreement is through January 31, 2023, at an annual salary
of $100,000 with 50,000 shares of common stock issued as a signing bonus. The Company will also pay up to $30,000 annually in housing
costs during the first year of employment. As of December 31, 2021, the Company issued 50,000 shares of its common stock to its Chief
Operating Officer with a fair value of $50,000 ($1.00 per share) on the date of grant. The fair value of the stock was based upon recent
third-party cash offering prices.
On November 15, 2021, the Company entered into an
employment agreement with its Chief Financial Officer. The initial term of the agreement is through February 1, 2021, at a salary of $48,000,
with 50,000 shares of common stock to be issued. At February 1, 2022, the compensation will increase to $120,000. As of March 31, 2022,
the Company issued 16,667 shares of its common stock to its Chief Financial Officer with a fair value of $25,000 ($1.50 per share) on
the date of grant. The fair value of the stock was based upon recent third-party cash offering prices.
Consulting Agreement – Third Parties
On December 30, 2021, the Company entered into a consulting
agreement. The agreements has a term of three (3) months. The Company will pay an aggregate $3,000 per month and 5,333 shares of Company’s
common stock. As of March 31, 2022, the Company issued 10,666 shares of its common stock to a consultant with a fair value of $16,000
($1.50 per share) on the date of grant. The fair value of the stock was based upon recent third-party cash offering prices and expensed
$6,000 as a component of general and administrative expenses.
- 21 -
Note 13 – Stockholders’ Deficit
The Company has one (1) class of common stock:
Common Stock
● 250,000,000
shares authorized
● Par value
- $0.0001
● Voting at
1 vote per share
Equity Transactions – Three Months Ended March
31, 2022
Stock and Warrants Issued for Cash
The Company issued 70,001 shares of common stock for
gross proceeds of $105,001 ($1.50/share) and a subscription receivable of $10,001.
Stock Issued for Services and Debt Settlement
The Company issued an aggregate 16,667 shares of its
common stock to its Chief Financial Officer, having a fair value of $25,000 ($1.50/share). Fair value of the stock was based upon recent
third-party cash offering prices, which represented the best evidence of fair value.
The Company issued 10,666 shares of its common stock
for services rendered in according with the consulting agreement entered on December 31, 2021, having a fair value of $16,000 ($1.50 per
share). Fair value of the stock was based upon recent third-party cash offering prices, which represented the best evidence of fair value.
On March 15, 2022, the Company entered into amendments
to certain unsecured 6% promissory notes (the "Amendments") with three investors and issued additional 12,500 shares of common
stock to these investors in consideration for the extension of the maturity date of the promissory notes until July 8, 2022.
The following is a summary of the Company’s
warrants at March 31, 2022 and December 31, 2021:
| |
|
|
|
|
|
Weighted |
|
|
| |
|
|
|
|
|
Average |
|
|
| |
|
|
|
Weighted |
|
Remaining |
|
Aggregate |
| |
|
Number of |
|
Average |
|
Contractual |
|
Intrinsic |
| Warrants |
|
Warrants |
|
Exercise Price |
|
Term (Years) |
|
Value |
| Outstanding and exercisable - December 31, 2021 |
|
5,100,000 |
|
$ |
4.46 |
|
1.16 |
|
$ |
36,155,000 |
| Granted |
|
— |
|
|
— |
|
— |
|
|
|
| Exercised |
|
— |
|
|
— |
|
— |
|
|
|
| Cancelled/Forfeited |
|
— |
|
|
— |
|
— |
|
|
|
| Outstanding and exercisable - March 31, 2022 |
|
5,100,000 |
|
$ |
4.46 |
|
0.91 |
|
$ |
32,075,000 |
These warrants are considered a direct offering cost
in connection with raising capital. As a result, the net effect on stockholders’ equity was $0.
- 22 -
Note 14 – Subsequent Events
The Company issued a $880,000, six-month (6), unsecured,
convertible note on June 11, 2022, which is due December 10, 2022. The convertible note bears interest at 12%, with a 10% original issue
discount ($88,000), resulting in net proceeds of $792,000. The note contains a discount to market feature, whereby, the lender can purchase
stock at 90% of the lowest trading price for a period of twenty (20) days preceding the conversion date. The right to convert begins 180
days following an event of default. The note bears a default interest rate of 18%.
The Company also paid $82,000 as a debt issuance cost
to placement agent and for professional fees for services rendered. These costs are considered to be a component of the total debt discount.
The Company also, issued 302,500 shares of its common stock as additional consideration with fair value of $453,750 ($1.50 per share)
on the date of grant. The fair value of the stock was based upon recent third-party cash offering prices. These costs are considered to
be a component of interest expense.
Additionally, the Company issued 800,000 five-year
(5) warrants. The warrants had a fair value of $2,599,066, based upon using a black-scholes option pricing model with the following inputs:
Schedule of black scholes option pricing model
| Stock Price |
|
$ |
6.00 |
|
| Exercise price |
|
$ |
3.00 |
|
| Expected term (in years) |
|
|
5 |
|
| Expected volatility |
|
|
602.34 |
% |
| Annual rate of quarterly dividends |
|
|
0 |
% |
| Risk free interest rate |
|
|
3.25 |
% |
The Company issued a $220,254, twelve-month (12),
unsecured, convertible note on May 27, 2022, which is due May 27, 2023. The note represents the amount of accrued and unpaid legal fees
owed by the Company. The convertible note bears interest at 10%. The note has a conversion price of $1.00 per share. The note bears a
default interest rate of 15%.
On June 7, 2022 the Company issued 810,384 in consideration
for the extension of the maturity date of the $550,000 promissory note until July 8, 2022.
On March 15, 2022, EZ Global and Konrad Koss entered
into Amendment No. 2 to the 6% unsecured promissory note in the principal amount of $200,000 (the "Second Amendment"). Pursuant
to the Second Amendment, the interest rate on the principal amount was increased from 6% to 7.5% per annum, and the maturity date was
extended until September 16, 2022.
On March 15, 2022, EZ Global and Konrad Koss entered
into Amendment No. 1 to the 6% unsecured promissory note in the principal amount of $50,000 (the "Amendment"). Pursuant to the
Amendment, the interest rate on the principal amount was increased from 6% to 7.5%, and the maturity date was extended until September
16, 2022.
On July 11, 2022, the Company repaid $25,687.50, representing
the outstanding principal amount and the accrued interest due under the 6% unsecured promissory note, originally issued on December 2,
2021, as amended on March 15, 2022, to Lynda N. Simmons Trust dated 2/9/2011 Peter A. Reichard, TTEE. Also on July 11, 2022, the Company
paid $3,516, the total amount of interest accrued on the outstanding principal amount of the two 6% unsecured promissory notes, originally
issued on December 8, 2021, as amended on March 15, 2022, to each of (i) Martin Fox and (ii) Initio, Inc. On July 8, 2022, the Company
entered into Amendment No. 2 to these promissory notes with each of Martin Fox and Initio, Inc. pursuant to which, the maturity date of
each note was extended to September 8, 2022.
Management has evaluated subsequent events through
September 7, 2022, and determined that there are no other transactions that require additional accounting or disclosure.
- 23 -
