10-Q 1 form_10-q.htm FORM 10-Q QUARTERLY REPORT FOR 06-30-2022
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended: June 30, 2022___________________________________________________________

 

or

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from ________________________________ to_________________________________________

 

Commission file number: 333-180251_____________________________________________________________________

 

EZRAIDER CO.
(Exact name of registrant as specified in its charter)

 

Florida   45-4390042
(State or other jurisdiction of incorporation or organization)   (IRS Employer Identification No.)

 

1303 Central Ave S, Unit D

Kent, WA 98032 

(Address of principal executive offices)
 
(833) 724-3378
(Registrant’s telephone number, including area code)
 
N/A 
(Former name, former address and former fiscal year, if changed since last report)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Trading

Symbol(s)

Name of each exchange on which registered
None N/A N/A

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes    No 

 

(Note: The registrant is a voluntary filer of reports under Section 13 or 15(d) of the Securities Exchange Act of 1934 and has filed during the preceding 12 months all reports it would have been required to file by Section 13 or 15(d) of the Securities Exchange Act of 1934 if the registrant had been subject to one of such Sections.)

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes    No 

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of the “large accelerated filer,” “accelerated filer,” “non-accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

  Large Accelerated Filer Accelerated Filer

 

  Non-Accelerated Filer Smaller Reporting Company
    Emerging Growth Company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes   No 

 

As of September 19, 2022, there were 41,991,836 shares of the registrant’s common stock, par value $0.0001 per share, issued and outstanding.

 


 

EZRAIDER CO.

 

FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2022

 

TABLE OF CONTENTS

 

    PAGE
     
  PART I - FINANCIAL INFORMATION 4
     
Item 1. Financial Statements (Unaudited) 4
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 25
     
Item 3. Quantitative and Qualitative Disclosures About Market Risk 31
     
Item 4. Controls and Procedures 31
     
  PART II - OTHER INFORMATION 32
     
Item 1. Legal Proceedings 32
     
Item 1A. Risk Factors 32
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 32
     
Item 3. Defaults Upon Senior Securities 32
     
Item 4. Mine Safety Disclosures 32
     
Item 5. Other Information 32
     
Item 6. Exhibits 31
     
  SIGNATURES 32

 

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Table of Contents

 

CAUTIONARY STATEMENT ON FORWARD-LOOKING INFORMATION

 

This Quarterly Report on Form 10-Q (the “Report”) contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are based upon our current assumptions, expectations, and beliefs concerning future developments and their potential effect on our business. In some cases, you can identify forward-looking statements by the following words: “may,” “will,” “could,” “would,” “should,” “expect,” “intend,” “plan,” “anticipate,” “believe,” “approximately,” “estimate,” “predict,” “project,” “potential,” “continue,” “ongoing,” or the negative of these terms or other comparable terminology, although the absence of these words does not necessarily mean that a statement is not forward-looking. This information may involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from the future results, performance or achievements expressed or implied by any forward-looking statements.

 

Factors that may cause or contribute actual results to differ from these forward-looking statements include, but are not limited to:

 

the Company’s ability to raise capital to fund its operations;
industry competition;
adverse economic conditions;
the Company’s ability to attract and retain qualified senior management and technical personnel;
the continued effect of the Covid-19 pandemic on the Company’s operations; and
other risks and uncertainties related to the sale and distribution of tactical electric stand-up ATV vehicles and accessories and our business strategy.

 

These forward-looking statements represent our intentions, plans, expectations, assumptions, and beliefs about future events and are subject to risks, uncertainties and other factors. Although we believe that the expectations reflected in these forward-looking statements are based on reasonable assumptions, there are a number of risks and uncertainties that could cause actual results to differ materially from such forward-looking statements. Considering these risks, uncertainties, and assumptions, the events described in the forward-looking statements may not occur or may occur to a different extent or at a different time than we have described.

 

All forward-looking statements speak only as of the date of this Report. Except to the extent required by law, we undertake no obligation to update or revise any forward-looking statements, or other information contained herein, whether as a result of new information, future events, a change in events, conditions, circumstances or assumptions underlying such statements, or otherwise. We caution you therefore that you should not rely on any of these forward-looking statements as statements of historical fact or as guarantees or assurances of future performance.

 

- 3 -


Table of Contents

 

PART I – FINANCIAL INFORMATION

 

ITEM 1.  FINANCIAL STATEMENTS

 

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.

 

EZRaider Co.

 

Financial Statements for the Three Months Ended June 30, 2022

 

Index to the Consolidated Financial Statements

 

  PAGE
   
Condensed Consolidated Balance Sheets at June 30, 2022 (Unaudited) and December 31, 2021 (Audited) 5
   
Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2022 and 2021 (Unaudited) 6
   
Condensed Consolidated Statement of Stockholders’ Equity (Deficit) for the Three and Six Months Ended June 30, 2022 and 2021 (Unaudited) 7-8
   
Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2022 and 2021 (Unaudited) 9
   
Notes to the Condensed Consolidated Financial Statements (Unaudited) 10

 

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Table of Contents

 

EZRAIDER CO.

Condensed Consolidated Balance Sheet

 

               
    June 30, 2022   December 31, 2021  
    (Unaudited)      
               
Assets              
               
Current Assets              
Cash   $ 173,043   $ 365,800  
Accounts receivable, net     310      
Prepaid expense     1,196,803     74,100  
Inventory     142,538     398,046  
Total Current Assets     1,512,694     837,946  
               
Property and Equipment, net     61,707     81,419  
               
Investment in D.S. Raider     3,850,000     3,850,000  
               
Total Assets   $ 5,424,401   $ 4,769,365  
               
Liabilities and Stockholders’ Equity (Deficit)              
               
Current Liabilities              
Accounts payable and accrued expenses   $ $740,217   $ 749,170  
Accounts payable - related party         11,000  
Accrued interest payable     138,898     92,377  
Deferred revenue     1,007,522     912,464  
Advances - related party     423      
Convertible notes payable, net of debt discount of $783,825 and $0 as of June 30, 2022 and December 31, 2021     816,426     500,000  
Notes payable     396,850     426,415  
Note payable - government loan (PPP)         13,215  
Total Current Liabilities     3,100,336     2,704,641  
               
Commitments          
               
Stockholders’ Equity (Deficit)              
Common stock, $0.0001 par value, 250,000,000 shares authorized 41,896,836 and 41,479,502, shares issued and outstanding, respectively     4,189     4,148  
Stock subscription receivable         (95,001 )
Additional paid-in capital     11,107,619     4,950,369  
Accumulated deficit     (8,787,743 )   (2,794,792 )
Total Stockholders’ Equity (Deficit)     2,324,065     2,064,724  
               
Total Liabilities and Stockholders’ Equity (Deficit)   $ 5,424,401   $ 4,769,365  

 

See accompanying notes to condensed consolidated financial statements.

 

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Table of Contents

 

EZRAIDER CO.

Condensed Consolidated Statements of Operations

For the Three and Six Months Ended June 30, 2022 and 2021

(Unaudited)

 

                           
    Three Months Ended June 30,   Six Months Ended June 30,  
    2022   2021   2022   2021  
                           
                           
Revenues   $ 215,328   $ 389,631   $ 631,567   $ 560,379  
                           
Cost of revenues     53,082     167,542     355,522     284,627  
                           
Gross Profit     162,246     222,089     276,045     275,752  
                           
Operating expenses                          
General and administrative expenses     433,491     243,137     832,904     390,286  
Total operating expenses     433,491     243,137     832,904     390,286  
                           
Loss from operations     (271,245 )   (21,048 )   (556,859 )   (114,534 )
                           
Other income(expense)                          
Gain on PPP loan forgiveness     726         13,215      
Interest expense     (5,417,727 )   (23,296 )   (5,449,307 )   (36,386 )
Total other expense     (5,417,001 )   (23,296 )   (5,436,092 )   (36,386 )
                           
Net loss   $ (5,688,246 ) $ (44,344 ) $ (5,992,951 ) $ (150,920 )
                           
Loss per share - basic and diluted   $ (0.14 ) $ (0.00 ) $ (0.14 ) $ (0.00 )
                           
Weighted average number of shares - basic and diluted     41,595,984     38,550,000     41,568,007     38,550,000  

 

See accompanying notes to condensed consolidated financial statements.

 

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Table of Contents

 

EZRAIDER CO.

Condensed Consolidated Statements of Changes in Stockholders Deficit

For the Three and Six Months Ended June 30, 2022 and 2021

(Unaudited)

 

                                      
              Additional       Stock   Total  
    Common Stock   Paid-in   Accumulated   Subscription   Stockholders’  
    Shares   Amount   Capital   Deficit   Receivable   Equity  
                                     
Balance
December 31, 2021
  41,479,502   $ 4,148   $ 4,950,369   $ (2,794,792 ) $ (95,001 ) $ 2,064,724  
                                     
Stock issued for cash ($1.50/share)   70,001     7     104,994         (10,001 )   95,000  
                                     
Stock issued for services ($1.50/share)   27,333     3     40,997             41,000  
                                     
Stock issued as debt issuance costs in connection with promissory notes ($1.50/share)   12,500     1     18,749             18,750  
                                     
Collection of subscription receivable                   95,001     95,001  
                                     
Net loss - three months ended March 31, 2022               (304,705 )       (304,705 )
                                     
Balance March 31, 2022 (Unaudited)   41,589,336   $ 4,159   $ 5,115,110   $ (3,099,497 ) $ (10,001 ) $ 2,009,771  
                                     
Stock issued as debt issuance costs in connection with promissory notes ($1.50/share)   302,500     30     453,720             453,750  
                                     
Warrants issued as interest expense           4,829,289             4,829,289  
                                     
Warrants issued as debt issue costs           709,500             709,500  
                                     
Collection of subscription receivable                   10,001     10,001  
                                     
Net loss - three months ended June 30, 2022               (5,688,246 )       (5,688,246 )
                                     
Balance June 30, 2022 (Unaudited)   41,891,836   $ 4,189   $ 11,107,619   $ (8,787,743 ) $   $ 2,324,065  

 

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              Additional       Total  
    Common Stock   Paid-in   Accumulated   Stockholders’  
    Shares   Amount   Capital   Deficit   Equity  
                               
Balance
December 31, 2020
  38,550,000   $ 3,855   $ 289,966   $ (503,684 ) $ (209,863 )
                               
Net loss - three months ended March 31, 2021               (106,576 )   (106,576 )
                               
Balance
March 31, 2021 (Unaudited)
  38,550,000   $ 3,855   $ 289,966   $ (610,260 ) $ (316,439 )
                               
Net loss - three months ended June 30, 2021               (44,344 )   (44,344 )
                               
Balance June 30, 2021 (Unaudited)   38,550,000   $ 3,855   $ 289,966   $ (654,604 ) $ (360,783 )

 

See accompanying notes to condensed consolidated financial statements.

 

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EZRAIDER CO.

Condensed Consolidated Statements of Cash Flows

For the Six Months Ended June 30, 2022 and 2021

(Unaudited)

 

               
    Six Months Ended June 30,  
    2022   2021  
               
Cash Flows from Operating Activities              
Net loss   $ (5,992,951 ) $ (150,920 )
Depreciation     19,712     41,476  
Stock issued as debt issuance cost     472,501      
Warrants issued for interest expense     4,829,289      
Amortization of debt discount     96,175      
Stock issued for services     41,000      
Bad debt recovery     (43,069 )    
Gain on debt settlement     (13,215 )    
Adjustments to reconcile net loss to net cash used in operations
Changes in operating assets and liabilities
             
(Increase) decrease in
Accounts receivable
    42,760     (57,399 )
Prepaid expense     (1,122,703 )    
Inventory     255,508     (309,641 )
Increase (decrease) in
Accounts payable and accrued expenses
 
 
 
 
 
211,297
 
 
 
 
 
155,270
 
 
Accounts payable - related party     (11,000 )    
Accrued interest payable     46,521      
Deferred revenue     95,058     35,972  
Net cash used in operating activities     (1,073,118 )   (285,242 )
               
Cash Flows from Investing Activities              
Investment in D.S. Raider         (500,000 )
Net cash used in investing activities         (500,000 )
               
Cash Flows from Financing Activities              
Repayments and advances from advances - related party, net     423     (150,530 )
Repayment of notes payable     (29,565 )   8,211  
Proceeds from note payables         3,110,956  
Proceeds of convertible notes payable     709,500      
Common stock issued for cash     95,000      
Collection of subscription receivable     105,002      
Net cash provided by financing activities     880,360     2,968,637  
               
Net increase (decrease) in cash     (192,757 )   2,183,395  
               
Cash - beginning of period     365,800     1,980  
               
Cash - end of period   $ 173,043   $ 2,185,375  
               
Supplemental disclosure of cash flow information              
Cash paid for interest   $   $  
Cash paid for income tax   $   $  
               
Supplemental disclosure of non-cash investing and financing activities              
Accounts payable converted to debt   $ 220,251   $  
Debt discount recorded in connection with convertible debt   $ 709,500   $  

 

See accompanying notes to condensed consolidated financial statements.

 

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EZRAIDER CO.

Notes to Condensed Consolidated Financial Statements

For the Six Months Ended June 30, 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.

 

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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 six months ended June 30, 2022 the Company had:

 

Net loss of $5,992,951; and
   
Net cash used in operations was $1,073,118.

 

Additionally, at June 30, 2022, the Company had:

 

Accumulated deficit of $8,787,743
   
Stockholders’ equity of $2,324,065; and
   
Working capital deficit of $1,587,642.

 

We manage liquidity risk by reviewing, on an ongoing basis, our sources of liquidity and capital requirements. The Company had $173,043 cash on hand at June 30, 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 six months ended June 30, 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.

 

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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.

 

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 and six months ended June 30, 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.

 

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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.

 

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 June 30, 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 June 30, 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 June 30, 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.

 

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Allowance for doubtful accounts was $0 and $26,677 at June 30, 2022 and December 31, 2021, respectively.

 

For the six months ended June 30, 2022, the Company recorded a bad debt recovery of $43,069.

 

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 June 30, 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 and six months ended June 30, 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.

 

Original Issue Discount

 

For certain notes issued, the Company provides the debt holder with an original issue discount. The original issue discount is recorded as a debt discount, reducing the face amount of the note, and is amortized to amortization of original issue discount in the consolidated statements of operations over the life of the debt.

 

Debt Issue Cost

 

Debt issuance cost paid to lenders, or third parties are recorded as debt discounts and amortized to interest expense in the consolidated statements of operations, over the life of the underlying debt instrument.

 

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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 six months ended June 30, 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

 

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 June 30, 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 June 30, 2022 and December 31, 2021, deferred revenues were $1,007,522 and $912,464, respectively.

 

Cost of Sales

 

Cost of sales predominantly represents job-related materials and supplies.

 

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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 $23,551 and $28,768 during the three months ended June 30, 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.

 

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

 

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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 June 30, 2022 and 2021, excludes the common stock equivalents of the following potentially dilutive securities because their inclusion would be anti-dilutive.

 

As of June 30, 2022 the Company had sufficient authorized shares of common stock to settle any potential conversions of its common stock equivalents.

 

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 June 30, 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.

 

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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.

 

Note 4 – Property and Equipment

 

At June 30, 2022 and December 31, 2021, property and equipment, net, was as follows:

 

            Estimated Useful  
    June 30, 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     70,470     50,758      
Property and equipment - net   $ 61,707   $ 81,419      

 

Depreciation expense for the six months ended June 30, 2022 and 2021, was $19,712 and $41,476, 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. (We’ll need to comment on status prior to release)

 

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 June 30, 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 - June 30, 2022   $  

 

 

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Note 7 – Convertible Notes Payable and Debt Discount

 

The following represents a summary of the Company’s convertible notes payable and the related key terms and outstanding balances at June 30, 2022 and December 31, 2021, respectively:

                           
    Convertible   Convertible   Convertible        
Terms   Notes Payable   Notes Payable   Notes Payable   Total  
                     
Issuance date of notes   January 2021   May 27, 2022   June 10, 2022        
                     
Maturity dates   January 7, 2023   May 27, 2023   December 10, 2022        
                     
Interest rate   8%   10%   12%        
Collateral   All assets   Unsecured   Unsecured        
Conversion rate   35% discount to market   $1.00   10% Discount to market        
                           
Balance - February 29, 2020   $   $   $   $  
Proceeds     500,000             550,000  
Balance - February 28, 2021     500,000             550,000  
Proceeds                 50,000  
Conversion of debt into equity - recapitalization                 (100,000 )
Balance - December 31, 2021   $ 500,000   $   $   $ 500,000  
Converion of accounts payable to debt         220,254         220,254  
Proceeds               880,000     880,000  
Balance - June 30, 2022    $ 500,000   $ 220,254   $ 880,000   $ 1,600,254  

 

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 warrants in consideration for the extension of the maturity date of the promissory notes until January 7, 2023.

 

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 $4,791,935, 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 warrants in consideration for the extension of the maturity date of the $550,000 promissory note until January 7, 2023. The warrants had a fair value of $4,829,289, based upon using a black-scholes option pricing model with the following inputs:

 

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Schedule of black scholes option pricing model

Stock Price   $ 2.50  
Exercise price   $ 6.00  
Expected term (in years)     5  
Expected volatility     270.10 %
Annual rate of quarterly dividends     0 %
Risk free interest rate     1.0 %

 

Debt Discount

 

The following represents a summary of the Company’s debt discount at June 30:

 

                 
    Convertible Note Payable  
    Amounts     In-Default  
Balance - December 31, 2021            
Proceeds - net     880,000        
Debt discount recorded     (880,000 )      
Amortization of debt discount     96,175        
Balance - June 30, 2022   $ 96,175     $  

 

 

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 June 30, 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 - June 30, 2022   $  

 

 

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.

 

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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 t of PPP loan in the amount of $12,489 in the first quarter of 2022. The remaining balance of $726 was paid off in June 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 paid - June 30, 2022     (726 )
Balance - June 30, 2022   $  

  

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. The remaining balance of $726 was paid off in June 2022.

 

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 June 30, 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  
June 30, 2022 activity - none     (2,738 )          
Balance - June 30, 2022   $270,956   $27,712   $   $25,000   $50,000   $50,000   $423,676  

 

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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.

 

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.

 

Note 11 – Advances – Related Party

 

During the six months ended June 30, 2022, the majority shareholder was owed $423. The loans are non-interest bearing, unsecured and due on demand. As of June 30, 2022, and December 31, 2021, the loan balance is $423 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.

 

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For the six months ended June 30, 2022, and 2021, the Company recorded rent expense of $48,534 and $58,453, 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 June 30, 2022, the Company has expensed $125,000 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 increased to $120,000. As of June 30, 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 June 30, 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.

 

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 – Six Months Ended June 30, 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 was collected in April 2022.

 

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.

 

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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 June 30, 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   1,610,384            
Exercised              
Cancelled/Forfeited              
Outstanding and exercisable - June 30, 2022   6,710,384   $ 4.46   2.00   $ 9,731,152

 

These warrants are considered a direct offering cost in connection with raising capital. As a result, the net effect on stockholders’ equity was $0.

 

Note 14 – Subsequent Events

 

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 14, 2022, and determined that there are no other transactions that require additional accounting or disclosure.

 

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The information set forth in this Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) contains certain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995, including, among others (i) expected changes in our revenue and profitability, (ii) prospective business opportunities and (iii) our strategy for financing our business. Forward-looking statements are statements other than historical information or statements of current condition. Some forward-looking statements may be identified by use of terms such as “believes”, “anticipates”, “intends” or “expects”. These forward-looking statements relate to our plans, liquidity, ability to complete financing and purchase capital expenditures, growth of our business including entering into future agreements with companies, and plans to successfully develop and obtain approval to market our product. 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 financial condition, results of operations, business strategy and financial needs.

 

Although we believe that our expectations with respect to the forward-looking statements are based upon reasonable assumptions within the bounds of our knowledge of our business and operations, in light of the risks and uncertainties inherent in all future projections, the inclusion of forward-looking statements in this Quarterly Report should not be regarded as a representation by us or any other person that our objectives or plans will be achieved.

 

We assume no obligation to update these forward-looking statements to reflect actual results or changes in factors or assumptions affecting forward-looking statements.

 

Our revenues and results of operations could differ materially from those projected in the forward-looking statements as a result of numerous factors, including, but not limited to, the following: the risk of significant natural disaster, the inability of our company to insure against certain risks, inflationary and deflationary conditions and cycles, currency exchange rates, and changing government regulations domestically and internationally affecting our products and businesses.

 

You should read the following discussion and analysis in conjunction with the Financial Statements and Notes attached hereto, and the other financial data appearing elsewhere in this Quarterly Report.

 

US Dollars are denoted herein by “USD”, “$” and “dollars”.

 

As used in this Quarterly Report, “we,” “our,” “us” and the “Company” refer to EZRaider Co., a Florida corporation, and its subsidiaries, unless the context requires otherwise.

 

Impact of COVID-19 Outbreak

 

The ongoing COVID-19 global and national health emergency has caused significant disruption in the international and United States economies and financial markets. 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 has the potential to significantly impact the Company’s supply chain 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 continues to evolve, the Company will continue to closely monitor market conditions and respond accordingly.

 

Overview and Recent Developments

 

The Company was incorporated 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.

 

Effective as of September 3, 2021, we changed our name from E-Waste Corp. to EZRaider Co. On September 14, 2021, the Company entered into an Agreement and Plan of Merger with EZRaider Global, Inc., a Nevada corporation (“EZ Global”), and our wholly-owned subsidiary, E-Waste Acquisition Corp., a Delaware corporation, pursuant to which E-Waste Acquisition Corp. merged with and into EZ Global, and EZ Global became a wholly-owned subsidiary of the Company (the “Merger”). At the effective time of the Merger, all of the outstanding shares of capital stock of EZ Global were exchanged for 28,550,000 shares of our common stock. Following the Merger, we discontinued our prior activities and continued the existing business operations of EZ Global, and its wholly-owned subsidiary, EZ Raider, LLC, a Washington limited liability company (“EZ LLC”), as our main business focus.

 

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EZ Global is the exclusive distributor in the United States of electric-powered, tactical manned vehicles, known as “EZRaider Vehicles,” that are manufactured and designed by D.S Raider Ltd., a company incorporated under the laws of Israel (“D.S Raider”). EZ Global obtained these exclusive rights to import, sell and distribute EZRaider Vehicles in the United States for all recreational and military (non-federal) markets from D.S Raider pursuant to an Authorized Exclusive Distribution Agreement, dated September 12, 2019, by and among D.S Raider, EZ LLC and EZRaider Global (the “Distribution Agreement”), which was renewed by a Renewal of Exclusive Distribution Agreement, dated September 2, 2021.

 

Effective as of September 14, 2021, the exercise prices of warrants to purchase 1,100,000 shares of the Company’s common stock held by Star V Partners LLC, warrants to purchase 1,050,000 shares of the Company’s common stock held by Maso Capital Investments Limited, and warrants to purchase 2,850,000 shares of the Company’s common stock held by Blackwell Partners LLC - Series A, were reduced from $4.50 per share to $1.00 per share due to the triggering of anti-dilution rights in these warrants.

 

On December 30, 2021, EZ Global and D.S Raider entered into a memorandum of understanding (the “Memorandum”) which, among other things, amended certain terms of the Share Purchase Agreement dated February 21, 2021, by and among EZ Global, D.S Raider, and the shareholders of D.S Raider (as previously amended on March 30, 2021 and August 31, 2021) (the “Share Purchase Agreement”). Specifically, under the Memorandum, the exclusive right of EZ Global to acquire 100% of the capital stock of D.S Raider was extended until March 15, 2022 (which date was later further extended until March 31, 2022) (the “Exclusivity Date”). Following the expiration of the Exclusivity Date, the Company has been evaluating its options with respect to the acquisition of D.S Raider.

 

In addition, pursuant to the Memorandum, D.S Raider also extended the exclusive rights granted to EZ Global under the Distribution Agreement through January 31, 2023, subject to EZ Raider (i) securing $1,600,000 of purchase orders for EZRaider Vehicles for the 2022 year (the “Purchase Orders”) by December 31, 2021; (ii) making the required payment of $800,000, representing 50% of the purchase price for the Purchase Orders (the “Down Payment”) by January 17, 2022; and (iii) placing the Purchase Orders. The Memorandum also granted D.S Raider the right, at its sole discretion, to terminate the Distribution Agreement and keep the balance of the Down Payment, if EZ Global failed to secure the Purchase Orders, pay for the secured Purchase Order within 7 days from receipt of notice of readiness for shipping of such Purchase Orders, or consummate an already placed Purchase Order. EZ Global paid the required $800,000 Down Payment on January 13, 2022, placed the Purchase Orders in accordance with the terms of the Memorandum, and paid the balance for the Purchase Orders on June 10th, 2022 (as further discussed below).

 

On February 14, 2022, the Company changed its fiscal year from February 28/29 to December 31.

 

On March 15, 2022, the Company entered into amendments to certain unsecured 6% promissory notes (the “Note Amendments”) with three investors that had purchased these notes from the Company on December 31, 2021. Pursuant to the Note Amendments, the Company issued 12,500 shares of common stock to these investors in consideration for the extension of the maturity dates of the promissory notes 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”) originally issued to Mr. Koss on March 12, 2020, as previously amended on July 11, 2021. Pursuant to the Second Amendment, the interest rate on the principal amount of the note 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 “First Amendment”) originally issued to Mr. Koss on September 22, 202021. Pursuant to the First Amendment, the interest rate on the principal amount of the note was increased from 6% to 7.5%, and the maturity date was extended until September 16, 2022.

 

On May 22, 2022, EZ Global and D.S Raider entered into a Distribution Letter Agreement (the “May 2022 Distribution Letter”), which amended certain terms set forth in the Distribution Agreement and the Memorandum, as follows: (i) subject to EZ Global’s full and complete satisfaction of the terms and conditions in the May 2022 Distribution Letter, D.S Raider agreed to waive its right to terminate the Distribution Agreement for nonpayment of amounts due under the terms of the Memorandum, and agreed that the terms of the Distribution Agreement will prevail and replace EZ Global’s rights as set forth in the Memorandum; (ii) the Distribution Agreement will continue to be in full force and effect throughout through January 31, 2023; (iii) EZ Global is required to satisfy all of its obligations under the Distribution Agreement and, in addition, to pay the outstanding balance due for prior orders in the amount of $103,625.50 (the “Balance Payment”). The parties also waived and relinquished all claims related to the distribution rights set forth in the Memorandum. On June 10th, 2022, EZ Global paid the Balance Payment pursuant to the May 2022 Distribution Letter.

 

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On May 27, 2022, the Company issued a secured convertible promissory note (the “Crone Note”) to the Crone Law Group, P.C., the Company’s legal counsel (the “Crone”), in the principal amount of $220,253.50 (the “Principal Amount”). The Crone Note was issued to Crone to secure repayment of unpaid legal fees owed to Crone by the Company as of April 30, 2022. The Crone Note bears interest at a rate of 10% per annum, which will increase to 15% upon the occurrence of an event of default, and has a maturity date of April 30, 2023(the “Maturity Date”). The terms of the Crone Note provide that the Principal Amount shall be adjusted on an ongoing basis to reflect any additional accrued and unpaid legal fees incurred by the Company and/or any payments made by the Company to Crone. The Crone Note may be prepaid in whole or in part without premium or penalty. Crone may convert any amounts due under the Crone Note, at any time following the date of the issuance, into shares of the Company’s common stock at the conversion price of $1.00 per share, subject to a 4.99% beneficial ownership limitation. In addition, on June 22, 2022, the Company issued Crone 100,000 shares of common stock in consideration for accepting the Crone Note and waiving interest on accrued and unpaid legal fees through April 30, 2022.

 

On June 7, 2022, EZ LLC and Cooper Dubois (the “Lender”) entered into amendment No. 1 (the “Dubois Amendment”) to the convertible promissory note originally issued by the Company to the Lender on January 8, 2021, in the original principal amount of $500,000.00, with the interest rate of 8% per annum (the “Dubois Note”). Pursuant to the Dubois Amendment (i) the maturity date of the Dubois Note was extended from January 7, 2022 to January 7, 2023 (the “Maturity Date”); (ii) Lender has the right to convert all or a portion of the principal and interest due under the Dubois Note into shares of common stock of the Company; (iii) the conversion price will be the lesser of a 35% discount to the pricing of financial raise completed to close the proposed acquisition of D.S. Raider, or $1.00 per share; (iv) the Company agreed to guarantee the re-payment of the Dubois Note; (v) Borrower may prepay the Dubois Note in whole or in part upon 15 days prior written notice.

 

Also, on June 7, 2022, the Lender assigned all his rights under the Dubois Note, as amended by the Dubois Amendment, to CD EZR Holdings, LLC (the “Assignee”) pursuant to an Assignment of the Convertible Promissory Note (the “Assignment”).

 

In connection with the Dubois Amendment and the Assignment, on June 7, 2022, the Company issued a warrant to Assignee to purchase 810,384 shares of the Company’s common stock at the exercise price of $2.50 per share, exercisable until January 8, 2026 (the “Dubois Warrant”). The Dubois Warrant is exercisable for cash, or on a cashless basis, has piggyback registration rights, and provides for the acceleration exercise rights to the Company, subject to conditions that the Company closes its acquisition of D.S Raider and maintains during the time period stated in the Warrant the closing price in excess of $6.00 per share. The number of shares to be received upon exercise of the Dubois Warrant and the exercise price are subject to adjustment in the event of a distribution of assets, subdivision of combination of common stock, consummation of a merger or other fundamental transaction, or other dilutive issuance.

 

On June 10, 2022, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with AJB Capital Investments, LLC, a Delaware limited liability company (the “Investor”), pursuant to which, on that date (the “Closing Date”), the Company sold and issued to the Investor a 12% secured promissory note (the “AJB Note”) in the principal amount of $880,000 (the “AJB Financing”). Pursuant to the Purchase Agreement, the Company agreed that, until the sooner of the 12-month anniversary of the Closing Date, or all amounts due under the AJB Note have been fully paid or converted, it will not, without Investor’s written consent, change the nature of its business, sell or acquire any material assets, or enter into any variable rate debt transaction. In addition, the Company agreed that, for as long as the AJB Note is outstanding, (a) the Investor will have the right of first refusal to participate in up to 100% of any subsequent offering of the Company’s securities, and (b) if the Company issues any securities upon terms more favorable than those provided to the Investor, the terms of the securities issued to the Investor will be adjusted accordingly.

 

The AJB Note bears interest at a rate of 12% per annum and has a stated maturity date of December 10, 2022 (the “AJB Maturity Date”). Interest accrues monthly and is payable on the first date of each month, with the final payment due on the AJB Maturity Date. The AJB Maturity Date may be extended by the Company for up to an additional 6 months, in which case the interest will be increased to 15% per annum. Any amount of principal or interest not paid when due will bear interest at the lesser of 18% per annum, or the maximum rate permitted by law. The AJB Note may be prepaid in whole or in part by the Company without penalty. Commencing 180 days after the Closing Date, at any time following an Event of Default (as defined in the AJB Note), amounts due under the AJB Note will be convertible into shares of the Company’s common stock (the “Conversion Shares”) at a conversion price (the “Conversion Price”) equal the lowest trading price of the Company’s common stock during the 20 days prior to either (a) the date of issuance of the Note, or (b) the date of conversion of the AJB Note, subject to a 4.99% conversion limitation. The Conversion Price is subject to adjustment upon the occurrence of any merger, consolidation, distribution, or other dilutive issuance by the Company.

 

As an additional incentive for the Investor to purchase the AJB Note, on the Closing Date, the Company issued the Investor an incentive fee of 302,500 shares of the Company’s common stock (the “Commitment Shares”), valued at $2.00 per share. The Company may redeem up to 165,000 of the Commitment Shares, for an aggregate price of $1.00 in total, if the total outstanding amount due under the AJB Note is fully repaid within 6 months from the Closing Date. At the Investor’s request, the Company will issue additional shares to the Investor following the 6-month anniversary of the Closing Date in order to maintain the agreed-upon aggregate value for the incentive fee of $605,000.

 

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On the Closing Date, the Company also issued the Investor a 5-year warrant (the “AJB Warrant”) to purchase up to 800,000 shares of the Company’s common stock (the “Warrant Shares”), at an exercise price of $3.00 per share (the “Exercise Price”). The AJB Warrant is exercisable for cash, or on a cashless basis, subject to a 4.99% beneficial ownership limitation. The number of Warrant Shares and Exercise Price are subject to adjustment in the event of a distribution of assets, subdivision of combination of common stock, the consummation of a merger or other fundamental transaction, or other dilutive issuance.

 

In connection with the issuance of the AJB Note, on June 10, 2022, the Company and Investor entered into a Security Agreement (the “Security Agreement”), pursuant to which, as further inducement for the Investor to purchase the AJB Note, the Company granted the Investor a security interest in all of the Company’s assets to secure the prompt payment and performance in full of all of Company’s obligations under the AJB Note. The security interest will be discharged upon full repayment or conversion of all amounts due under the AJB Note. The Company and Investor also entered into Registration Rights Agreement, pursuant to which the Company agreed to (a) file a registration statement on Form S-1 (the “Registration Statement”) to register for resale the Commitment Shares, the Conversion Shares, and the Warrant Shares (the “Registrable Securities”) within 90 days of the Closing Date, (b) have the Registration Statement declared effective by the SEC within 180 days of the Closing Date, and (c) keep such Registration Statement effective until the Investor has sold all the Registrable Securities.

 

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.

 

Results of Operations

 

Three-Month Period Ended June 30, 2022 Compared to Three-Month Period Ended June 30, 2021

 

Revenues

 

Revenues from operations were $215,328 for the three months ended June 30, 2022, as compared to $389,631 for the three months ended June 30, 2021. This increase was primarily due to sale of product.

 

Cost of Revenue

 

Cost of revenues was $53,082 for the three months ended June 30, 2022, as compared to $167,542 for the three months ended June 30, 2021. This decrease was primarily due to lower costs associated with products sold due to lower shipping costs to import during the global supply chain squeeze. Gross profits were $162,246 and $222,089 for the three months ended June 30, 2022 and 2021, respectively. Gross profit margin increased to 75% from 57% for the three months ended June 30, 2022 and 2021, respectively. The increase was primarily due to higher margins associated with the mix of products sold, namely higher margin accessories and machines.

 

Operating Expenses

 

Operating expenses increased 78% to $433,491 for the three months ended June 30, 2022, as compared to $243,137 for the three months ended June 30, 2021. This increase was primarily due to an increase in professional fees, salary expense, and general administrative expenses attributable to general business operations.

 

Other Expenses

 

The Company’s other expenses increased to $5,417,001 for the three months ended June 30, 2022, as compared to other expenses of $23,296 during the three months ended June 30, 2021. The primary reason for this increase was due to warrants issued to debt holders for interest expense on the outstanding debt and slightly offset by gain on forgiveness on PPP loan.

 

Due to the described factors above, we had a net loss of $5,688,246 and $44,344 for the three months ended June 30, 2022 and 2021, respectively.

 

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Six-Month Period Ended June 30, 2022 Compared to Six-Month Period Ended June 30, 2021

 

Revenues

 

Revenues from operations were $631,567 for the six months ended June 30, 2022, as compared to $560,379 for the six months ended June 30, 2021. This increase was primarily due to sale of product.

 

Cost of Revenue

 

Cost of revenues was $355,522 for the six months ended June 30, 2022, as compared to $284,627 for the six months ended June 30, 2021. This increase was primarily due to higher costs associated with products sold due to higher shipping costs to import during the global supply chain squeeze. Gross profits were $276,045 and $275,752for the six months ended June 30, 2022 and 2021, respectively. Gross profit margin decreased to 44% from 49% for the six months ended June 30, 2022 and 2021, respectively. The decrease was primarily due to lower margins associated with the mix of products sold, namely higher margin accessories and machines.

 

Operating Expenses

 

Operating expenses increased 113% to $832,904 for the six months ended June 30, 2022, as compared to $390,286 for the six months ended June 30, 2021. This increase was primarily due to an increase in professional fees, salary expense, and general administrative expenses attributable to general business operations.

 

Other Expenses

 

The Company’s other expenses increased to $5,436,092 for the six months ended June 30, 2022, as compared to other expenses of $36,386 during the six months ended June 30, 2021. The primary reason for this increase was due to warrants issued to debt holders for interest expense on the outstanding debt and slightly offset by gain on forgiveness on PPP loan.

 

Due to the described factors above, we had a net loss of $5,992,951 and $150,920 for the six months ended June 30, 2022 and 2021, respectively.

 

Liquidity and Capital Resources

 

For the six months ended June 30, 2022, net cash used in operations of $1,073,118 was the result of a net loss of $5,992,951, depreciation expense of $19,712, warrants issued for interest expense of $4,829,289, amortization of debt discount of $96,175 stock issued for services of $41,000, stock issued as debt issuance cost of $472,501, gain on forgiveness of PPP loan of $13,215, bad debt recovery of $43,069, a decrease in accounts receivable of $42,760, increase in prepaid expense of $1,122,703, and a decrease in inventory of $255,508. These were offset by an increase of accounts payable of $211,297 and a decrease in accounts payable – related party of $11,000, an increase in accrued interest payable of $46,521, and an increase in deferred revenue of $95,058.

 

For the six months ended June 30, 2021, net cash used in operations of $285,242 was the result of a net loss of $150,920, depreciation expense of $41,476, an increase in accounts receivable of $57,399, and a decrease in inventory of $309,641. These were offset by a increase of accounts payable of $155,270 and increase in deferred revenue of $35,972.

 

Net cash used in investing activities was $500,000 for the six months ended June 30, 2021, which was attributable to $500,000 investment in D.S. Raider.

 

Net cash provided by financing activities was $880,360 for the six months ended June 30, 2022, which was attributable to advances from related party of $423, repayment of note payable of $29,565, partially offset by common stock issued for cash and collection of subscription receivable of $200,002.

 

Net cash provided by financing activities was $2,968,637 for the six months ended June 30, 2021, reflecting repayment of advances to related party of $150,530, repayment of note payable of $8,211, and proceeds from note payable of $3,110,956.

 

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Liquidity, Going Concern and Management’s Plans

 

These condensed 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.

 

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 six months ended June 30, 2022 the Company had:

 

Net loss of $5,992,951; and
   
Net cash used in operations was $1,073,118.

 

Additionally, at June 30, 2022, the Company had:

 

Accumulated deficit of $8,787,743
   
Stockholders’ equity of $2,324,065; and
   
Working capital deficit of $1,587,642.

 

We manage liquidity risk by reviewing, on an ongoing basis, our sources of liquidity and capital requirements. The Company has cash on hand of $173,043 on June 30, 2022.

 

The Company expects business operations to generate sufficient revenues and positive cash flows from operations to meet its current obligations. However, the Company may seek 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.

 

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.

 

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:

 

Pursuing additional capital raising opportunities;
   
Investing in the development and growth of EZ Global’s electric vehicles business;
   
Identifying and pursuing additional acquisitions, including the acquisition of D.S Raider; and
   
Identifying unique market opportunities that represent potential positive short-term cash flow.

 

Critical Accounting Policies and Estimates

 

We prepare our condensed consolidated financial statements in accordance with accounting principles generally accepted in the United States of America, and make estimates and assumptions that affect our reported amounts of assets, liabilities, revenue and expenses, and the related disclosures of contingent liabilities. We base our estimates on historical experience and other assumptions that we believe are reasonable in the circumstances. Actual results may differ from these estimates.

 

The following critical accounting policies affect our more significant estimates and assumptions used in preparing our consolidated financial statements.

 

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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.

 

When a client is invoiced, the amount is recorded as an asset in Accounts Receivable and as Deferred Revenue in Current Liabilities. When payment is received the amount is moved to Cash on the balance sheet.

 

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 June 30, 2022.

 

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 June 30, 2022.

 

Recent Accounting Pronouncements

 

The recent accounting standards that have been issued or proposed by Financial Accounting Standard Board (FASB) or other standard setting bodies that do not require adoption until a future date are not expected to have a material impact on the financial statement upon adoption.

 

The recent accounting pronouncements are described in Note 2 to the condensed consolidated financial statement appearing elsewhere in this report.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

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

 

ITEM 4. CONTROLS AND PROCEDURES

 

Disclosure Controls and Procedures

 

We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended) that are designed to ensure that information required to be disclosed in our Securities Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and that such information is accumulated and communicated to our management, as appropriate, to allow timely decisions regarding required disclosure.

 

Our management has evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based upon that evaluation, management has concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were not effective.

 

Changes in Internal Control over Financial Reporting

 

There has been no change in our internal control over financial reporting identified in connection with the evaluation we conducted on the effectiveness of our internal control over financial reporting as of June 30, 2022, that occurred during our second fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

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PART II – OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

 

On January 31, 2022, Remer, LLC f/k/a CRR Cabins, LLC, an Oregon corporation (“Remer”), filed a complaint against our subsidiary EZ LLC in the Superior Court of the State of Washington, seeking damages in the amount of $114,460, plus interest and attorney’s fees. In May 2021, Remer entered into a distribution agreement with EZ LLC to become an authorized distributor of EZRaider Vehicles and paid $171,660 to purchase certain inventory. EZ LLC was not able to deliver the purchased vehicles on a timely basis and both the distribution agreement and purchase order were canceled. To date, EZ LLC has repaid $132,220 to Remer. The Company has accounted for the remaining $114,460 owed to Remer as a liability.

 

Except for the foregoing, we know of no materials, active or pending legal proceedings against us, nor are we involved as a plaintiff in any material proceedings or any threatened or pending litigation. There are no proceedings in which any of our directors, officers or affiliates, or any beneficial shareholder are an adverse party or has a material interest adverse to us.

 

ITEM 1A. RISK FACTORS

 

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

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

Except as stated below, and other than as previously reported in our Current Reports on Form 8-K, or prior periodic reports, we did not sell any unregistered equity securities during the three-month period ended June 30, 2022.

 

On June 22, 2022, the Company issued 100,000 shares of common stock to The Crone Law Group, P.C., the Company’s legal counsel, in consideration for accepting the Crone Note and waiving interest on accrued and unpaid legal fees through April 30, 2022.

 

This transaction was exempt from registration under Section 4(a)(2) of the Securities Act as not involving any public offering. None of the securities were sold through an underwriter and, accordingly, there were no underwriting discounts or commissions involved.

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

None.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

Not applicable.

 

ITEM 5. OTHER INFORMATION

 

None.

 

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ITEM 6. EXHIBITS

 

Exhibit No.   Description
     
31.1   Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer
     
31.2   Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer
     
32.1   Chief Executive Officer Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
     
32.2   Chief Financial Officer Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
     
101.INS   Inline XBRL Instance Document - the XBRL Instance Document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
     
101.SCH   Inline XBRL Taxonomy Extension Schema Document
     
101.CAL   Inline XBRL Taxonomy Extension Calculation Linkbase Document
     
101.DEF   Inline XBRL Taxonomy Definition Linkbase Document
     
101.LAB   Inline XBRL Taxonomy Extension Label Linkbase Document
     
101.PRE   Inline XBRL Taxonomy Extension Presentation Linkbase Document
     
104   Inline XBRL for the cover page of this report, included in the Exhibit 101 Inline XBRL Document Set.

 

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

       
    EZRAIDER CO.
       
       
Dated:  September  19, 2022   By: /s/ Moshe Azarzar
    Name: Moshe Azarzar
    Title: Chief Executive Officer, President, Treasurer and Secretary
(Principal Executive Officer)
       
       
Dated:  September  19, 2022   By: /s/ George Andrew Lear III
    Name: George Andrew Lear III
    Title: Chief Financial Officer
(Principal Financial and Accounting Officer)

 

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