The Offer

Company Overview

The premium electric motorbike and bicycle manufacturer and supplier SODR is situated in California and specializes in electric mobility. To provide high-quality products at affordable pricing points, SODR develops its products with both the customer and production processes in mind. Since 2015, SODR has delivered more than 63,000 units in 72 countries, playing a crucial part in the development of the e-bike category by designing, producing, and marketing one of the first large-scale e-bikes both domestically and abroad.

Key Highlights

Primary Offering: The firm is issuing 4,000,000 shares along with an additional 600,000 shares to the underwriter, who will have a 45-day option to acquire all these extra shares at the initial offering price less the underwriting discount. A warrant having an exercise price equal to 125% of the price of the first public offering will be given to the underwriter by SODR in an amount equivalent to 4% of the total number of shares of common shares sold in the offering.

Use of proceeds:

Assuming an initial public offering price of USD 5.00 per share of common stock, which is the midpoint of the price of the IPO range, after deducting estimated underwriting markdowns and commissions and projected offering expenses payable by the company, SODR estimated that the net proceeds from its issuance and sale of 4,000,000 shares of the common stock in the offering will be around USD 17.5 million. After subtracting the projected underwriting discounts and commissions as well as the anticipated offering costs owed by the firm, SODR calculated that the net proceeds from the offering will be around USD 20.3 million if the underwriter fully exercises its option to acquire further shares. 

Currently, SODR plans to use USD 5.9 million of the net proceeds of the subscription to repay the portion of the Senior Secured Notes (including interest thereon) that is not converted into shares of common stock at the closing of the offering, and USD 11.6 million of the net proceeds to fund the research and development of new products and expansion, existing products, and international markets.

Dividend policy: On its capital stock, the corporation has never declared or distributed any cash dividends. The capital stock of either SONDORS Electric Bike Company or SONDORS Electric Car Company has never been declared or paid a cash dividend. Currently, SODR plans to keep all cash in hand and any potential future earnings in order to build its business and pay off debt. As a result, the corporation does not envision itself paying any cash dividends anytime soon. The board of directors will decide whether to pay dividends in the future based on the outcomes of operations, the financial situation, the need for capital, and other considerations, including contractual commitments.

Industry and competitive analysis

• E-bike sales have greatly expanded globally over the past several years, and it is anticipated that sales will continue to rise. The worldwide e-bike market is anticipated to increase at a compound annual growth rate, or CAGR, of 12.6% from USD 35.7 billion in 2021 to USD 92.2 billion by 2029, according to a Fortune Business Insights analysis published in May 2022.
• Sales have increased in North America as well, where the market for e-bikes was estimated by Mordor Intelligence to be worth USD 800 million in 2021 and to rise at a 12.5% CAGR to reach USD 1.62 billion by 2027. The need for a more sustainable, environmentally friendly, and affordable form of transportation as well as the rising popularity of cycling as a recreational activity have been the main growth drivers of the e-bike industry. The development of higher-quality and cheaper e-bikes because of technological developments in tiny electric motors, battery materials, and manufacturing has further fueled market expansion.
• Strong market demand is also being seen in the global market for e-motorcycles. Research and Markets estimates that worldwide e-motorcycle sales will total USD 1.9 billion in 2020 and will increase at a 19.4% CAGR to reach USD 6.2 billion by 2026. The development of quick charging infrastructure for electric cars, growing concerns about carbon emissions, and rising customer interest in riding motorbikes for transportation and enjoyment have all contributed to the market's continuous expansion.

• E-scooter sales worldwide reached USD 20.9 billion in 2021, and, according to a study report released by Polaris Market Research in June 2022, they are projected to increase by 11.2% CAGR to USD 51.0 billion in 2030.

Financial Highlights (Expressed in USD):

• Increased revenue and cost of revenues: The rise of USD 5.6 million or 49% in total revenue from USD 11.2 million for the nine months ended September 30, 2021, to USD 16.8 million for the nine months till September 30, 2022, was due to higher product demand. The TTM ending September 30, 2022, had a total revenue of USD 22.0 million. The total cost of revenue for the nine months that ended on September 30, 2022, was USD 13.0 million, up USD 4.6 million or 56% from USD 8.3 million for the nine months that ended on September 30, 2021. The rise in unit sales is largely responsible for the increase in the cost of revenue.
• Improved Gross Profit: The nine-month total gross profit for the nine months ended September 30, 2022, which increased by USD 0.9 million or 31% to USD 3.8 million from USD 2.9 million for the nine months ended September 30, 2021. An increase in product demand is credited for the rise. Due to the company's decision to stop charging for shipping, there has been a decline in the gross profit percentage. There has also been a growth in the company's business with Costco, where it earns lower margins but builds brand recognition on Costco.com and in stores.
• Increased net loss: The net loss increased for the nine months that ended September 30, 2022, due to increased cost of sales as well as increased selling & administrative expenses.

Key Management Highlights

Risk Associated (High)

Investment in the IPO of “SODR” is exposed to a variety of risks such as:

• Business and operational risk: For the three fiscal years ending December 31, 2021, 2020, and the nine months ending September 30, 2022, respectively, SODR had net losses of USD 4,892,000, USD 745,000, and USD 4,225,000. For a variety of causes, such as unanticipated costs, challenges, complexities, delays, and other unforeseen occurrences, SODR could continue to sustain large losses in the future. As the company increases its development and production efforts to supporting its business and increases its marketing and sales efforts to encourage an increase in the number of product offerings and the number of customers purchasing the products, SODR anticipates that operating expenses will rise significantly soon. It could be more challenging to establish and sustain profitability because of these costs.
• Stiff competition: The EV markets in which the firm competes are still in their infancy and are fiercely competitive; as these markets mature, the company may find it difficult to remain competitive in them. Currently, SODR is up against both new and long-standing rivals, and it anticipates future competition from a variety of sources, including businesses using cutting-edge technology. The business, prospects, financial situation, and operational performance may all suffer because of increased competition, which might lead to reduced car sales, price cuts, revenue shortages, customer losses, and market share losses.
• Third-party dependence: The internal infrastructure and capacity needed to produce and assemble the items are not currently present at SODR, nor does the firm have any intention of developing them. Currently, SODR works with outside firms to deliver these services. If the third-party manufacturers and/or assembly firms give the supply of other products a higher priority than the supply of SODR's products or otherwise fail to perform satisfactorily in accordance with the terms of their agreement with SODR, the company may experience delays in manufacturing and/or assembly. As a result, SODR could encounter major delays in the flow of the products, which might limit its capacity to launch the products on schedule and provide them at the levels necessary for successful market commercialization.

Conclusion

In comparison to the same period in 2021, net loss for the nine months that ended September 30, 2022, was USD 4.225 million compared to USD 1.784 million, an increase of USD 2.44 million. This worsening was primarily the result of rising cost of revenue, stock-based compensation expenses, labor costs, and professional services & audit costs. When compared to the same time in 2021, operating revenue was USD 11.2 million, it increased by USD 5.6 million or 49% to USD 16.8 million for the nine months that concluded on September 30, 2022. Additionally, a respectable CAGR is predicted for the market for E-bikes and other SODR's goods both in the United States and internationally. Even though SODR was successful in keeping topline revenue flow steady, other operational costs and revenue costs have increased because of macroeconomic factors such rising inflation. Up to 2023, the company's costs are expected to be impacted by the high level of inflation, which will raise costs even more and lower profitability. Although SODR would be able to accomplish the IPO's objectives with the money raised, given the macroeconomic climate at the moment, investment in this IPO appears to be quite risky.

Hence, given the financial performance of the company for the nine months ending September 30, 2022, consistent revenue, worsened net loss, industry analysis, use of proceeds, and associated risks “Sondors Inc (SODR)” IPO seems “Neutral" at the IPO price.