AYRO, Inc (NASDAQ:AYRO), an electric vehicle (EV) maker, has 10 million reasons for AYRO stock to rise by 31%. And the rub is it has less than 6 months for this to happen.
The reason is straightforward. As part of a recent $10 million equity raise at $6.06 per share, AYRO issued warrants. These warrants give AYRO the 10 million reasons to get AYRO higher.
Here is what that means. The Series A warrants were issued to the investors in the $10 million shares at $6.06 per share. This was made known on page 12 of the company’s latest prospectus.
However, the investors have six months until May 22, 2021, to buy the shares at a price of $8.09. Otherwise. the right to buy the shares at that price expires.
Therefore it would only make sense to exercise these warrants if AYRO stock were higher than $8.09 before May 22. So, in effect, AYRO needs to get AYRO stock well above that price.
And here is why that is important. AYRO issued 1.237624 million Series A warrants to buy AYRO stock at $8.09. In other words, $10 million (i.e., $8.09 times 1.237624 shares) will be paid to AYRO by the investors if they want to buy the shares. And, of course, they would only do so if they could turn around and sell those shares at a profit, such as at $9.00.
So, in effect, AYRO has 10 million reasons to push its stock at least 31% higher. The clock is ticking and they need to do something dramatic for that to happen.
What Could AYRO Do?
I find this set of warrants very interesting. Don’t forget these Series A warrants had an unusual expiration period of just 6 months. The Series B warrants, for just $7.3 million, are exercisable at a slightly higher price of $8.90 per share. But they have a five-year exercise period.
It’s almost as if the company knew they were going to sign a new client and told the institutional investors. AYRO might have predicted that the price would soon reach $9.00 per share.
For example, here is how those negotiations might have gone.
“AYRO: We need $10 million, but once we sign this new client up, we will need $17.3 million.
INVESTORS: When do you expect to sign this new client?
AYRO: It’s going to take 6 months at most, but we need $20 million now to prove to them we have the financial wherewithal to produce EVs. Then we will need another $7 million immediately or so over the next several years.
INVESTORS: OK. Here is what we will do. We will give you $10 million now at $6.06. You give us warrants to buy shares at $8.09 within six months for $10 million.
This will give you plenty of time to sign that client, plus it will show them you will have enough money. Lastly, we will give you another $7.3 million for a price of $8.90, over 5 years. That way, in case the stock hits $9.00, we will make a profit.”
What This Means for AYRO Stock
In other words, the investors, a Chinese company called Wanxiang that will make the EVs, is not fully committed in advance. They get to see whether AYRO will perform.
In effect, their average cost with the warrants will be just $8.41 (i.e., $17.355 million divided by 2.062 million warrants). Therefore, if AYRO stock rises to $9.00, they have an “in-the-money” profit of $1.22 million (i.e., 2.062 million warrants times 59 cents “in-the-money” gain).
Or maybe there is some other deal in the works. For example, both the investors and the company might have thought it would take six months. That way, once the deal is made public, AYRO stock could rise to at least $8.09 or higher.
So, I highly suspect that there is something else in the works for AYRO stock. Otherwise, why would the company agree to such a short time frame for the first set of warrants for $10 million? That is just as high as the $10 million raised at $6.06 per share.
So, hang on to your hat. There is likely some new shoe to drop within the next several months that could push AYRO stock much higher.
On the date of publication, Mark R. Hake did not hold a long or short position (either directly or indirectly) in any stock mentioned in this article.