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, 2023

☐	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: 001-34643

AYRO, INC.

(Exact name of registrant as specified in its charter)

Delaware		98-0204758
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

900 E. Old Settlers Boulevard, Suite 100
Round Rock, Texas		78664
(Address of principal executive offices)		(Zip Code)

(512) 994-4917

(Registrant’s telephone number, including area code)

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

Title of each Class		Trading Symbol(s)		Name of each exchange on which registered
Common Stock, par value $0.0001 per share		AYRO		The NASDAQ Stock Market LLC

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 ☐

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 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 “large accelerated filer,” “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 August 11, 2023, the registrant had 37,732,530 shares of common stock outstanding.

AYRO, Inc.

Quarter Ended June 30, 2023

Table of Contents

		PAGE
PART I	FINANCIAL INFORMATION	F-1

ITEM 1.	Financial Statements (Unaudited)	F-1
	Condensed Consolidated Balance Sheets as of June 30, 2023 and December 31, 2022	F-1
	Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2023 and 2022	F-2
	Condensed Consolidated Statements of Changes in Stockholders’ Equity for the Three and Six Months Ended June 30, 2023 and 2022	F-3
	Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2023 and 2022	F-4
	Notes to the Condensed Consolidated Financial Statements (Unaudited)	F-5
ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1
ITEM 3.	Quantitative and Qualitative Disclosure About Market Risk	17
ITEM 4.	Controls and Procedures	17

PART II	OTHER INFORMATION	18

ITEM 1.	Legal Proceedings	18
ITEM 1A.	Risk Factors	18
ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	19
ITEM 3.	Defaults Upon Senior Securities	19
ITEM 4.	Mine Safety Disclosures	19
ITEM 5.	Other Information	19
ITEM 6.	Exhibits	20

SIGNATURES		22

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)

AYRO, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

	June 30,			December 31,
	2023			2022
ASSETS
Current assets:
Cash	$	13,569,265		$	39,096,562
Marketable securities		19,464,015			9,848,804
Accounts receivable, net		104,155			510,071
Inventory		3,049,972			970,381
Prepaid expenses and other current assets		3,269,831			1,478,845
Total current assets		39,457,238			51,904,663

Property and equipment, net		3,201,260			2,192,337
Operating lease – right-of-use asset		750,877			819,401
Deposits and other assets		84,595			73,683
Total assets	$	43,493,970		$	54,990,084

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:
Accounts payable		716,236			1,107,215
Accrued expenses		910,114			964,937
Current portion lease obligation – operating lease		178,013			165,767
Total current liabilities		1,804,363			2,237,919
Lease obligation – operating lease, net of current portion		601,349			693,776
Total liabilities		2,405,712			2,931,695

Stockholders’ equity:
Preferred Stock, (authorized – 20,000,000 shares)		-			-
Convertible Preferred Stock Series H, ($0.0001 par value; authorized – 8,500 shares; issued and outstanding – 8 shares as of June 30, 2023 and December 31, 2022, respectively)		-			-
Convertible Preferred Stock Series H-3, ($0.0001 par value; authorized – 8,461 shares; issued and outstanding – 1,234 as of June 30, 2023 and December 31, 2022, respectively)		-			-
Convertible Preferred Stock Series H-6, ($0.0001 par value; authorized – 50,000 shares; issued and outstanding – 50 as of June 30, 2023 and December 31, 2022, respectively)		-			-
Preferred stock, value		-			-
Common Stock, ($0.0001 par value; authorized – 100,000,000 shares; issued and outstanding – 37,536,101 and 37,241,642 as of June 30, 2023 and December 31, 2022, respectively)		3,753			3,724
Additional paid-in capital		133,733,091			133,224,249
Accumulated deficit		(92,648,586	)		(81,169,584	)
Total stockholders’ equity		41,088,258			52,058,389
Total liabilities and stockholders’ equity	$	43,493,970		$	54,990,084

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

F-1

AYRO, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

	2023			2022			2023			2022
	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2023			2022			2023			2022
Revenue	$	139,544		$	981,560		$	252,628		$	2,008,405
Cost of goods sold		332,027			2,827,512			551,820			4,004,657
Gross loss		(192,483	)		(1,845,952	)		(299,192	)		(1,996,252	)

Operating expenses:
Research and development		2,405,398			1,046,797			4,535,388			1,912,204
Sales and marketing		420,861			337,226			1,138,953			1,182,042
General and administrative		3,247,731			2,741,700			6,091,047			5,446,627
Total operating expenses		6,073,990			4,125,723			11,765,388			8,540,873

Loss from operations		(6,266,473	)		(5,971,675	)		(12,064,580	)		(10,537,125	)

Other income (expense):
Other income (expense), net		(9,166	)		10,706			52,532			19,597
Interest income		117,278			-			261,638			-
Unrealized gain (loss) on marketable securities		146,935			(13,479	)		198,215			(35,580	)
Realized gain on marketable securities		8,193			-			73,193			-
Other income (expense), net		263,240			(2,773	)		585,578			(15,983	)

Net loss	$	(6,003,233	)	$	(5,974,448	)	$	(11,479,002	)	$	(10,553,108	)

Net loss per share, basic and diluted	$	(0.16	)	$	(0.16	)	$	(0.31	)	$	(0.29	)
Net loss per share, basic	$	(0.16	)	$	(0.16	)	$	(0.31	)	$	(0.29	)

Basic and diluted weighted average Common Stock outstanding		37,476,845			36,982,436			37,398,555			36,945,240
Basic weighted average Common Stock outstanding		37,476,845			36,982,436			37,398,555			36,945,240

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

F-2

AYRO, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(UNAUDITED)

	Shares		Amount		Shares		Amount		Shares		Amount		Shares		Amount		Capital		(Deficit)			Total
	Three and Six Months Ended June 30, 2023
	Series H				Series H-3				Series H-6
	Preferred				Preferred				Preferred								Additional
	Stock				Stock				Stock				Common Stock				Paid-in		Accumulated
	Shares		Amount		Shares		Amount		Shares		Amount		Shares		Amount		Capital		(Deficit)			Total
Balance, January 1, 2023		8	$	-		1,234	$	-		50	$	-		37,241,642	$	3,724	$	133,224,249	$	(81,169,584	)	$	52,058,389
Stock Based Compensation				-				-				-				-		20,116		-			20,116
Vesting of Restricted Stock		-		-				-				-		110,562		11		246,614		-			246,625
Net Loss		-		-				-				-				-				(5,475,769	)		(5,475,769	)
Balance, March 31, 2023		8		-		1,234		-		50		-		37,352,204		3,735		133,490,979		(86,645,353	)		46,849,361
Stock Based Compensation				-				-				-				-		11,417		-			11,417
Vesting of Restricted Stock				-				-				-		183,897		18		230,695		-			230,713
Net Loss				-				-				-				-				(6,003,233	)		(6,003,233	)
Balance, June 30, 2023		8		-		1,234		-		50		-		37,536,101	$	3,753	$	133,733,091	$	(92,648,586	)	$	41,088,258

	Three and Six Months Ended June 30, 2022
	Series H				Series H-3				Series H-6
	Preferred				Preferred				Preferred								Additional
	Stock				Stock				Stock				Common Stock				Paid-in			Accumulated
	Shares		Amount		Shares		Amount		Shares		Amount		Shares		Amount		Capital			(Deficit)			Total
Balance, January 1, 2022		8	$	-		1,234	$	-		50	$	-		36,866,956	$	3,687	$	131,654,776		$	(58,234,231	)	$	73,424,232
Balance		8	$	-		1,234	$	-		50	$	-		36,866,956	$	3,687	$	131,654,776		$	(58,234,231	)	$	73,424,232

Stock Based Compensation				-				-				-				-		288,110			-			288,110
Vesting of Restricted Stock				-				-				-		43,000		4		329,377			-			329,381
Net Loss				-				-				-				-					(4,578,660	)		(4,578,660	)
Balance, March 31, 2022		8		-		1,234		-		50		-		36,909,956		3,691		132,272,263			(62,812,891	)		69,463,063
Balance, value		8		-		1,234		-		50		-		36,909,956		3,691		132,272,263			(62,812,891	)		69,463,063
Stock Based Compensation				-				-				-				-		303,553			-			303,553
Vesting of Restricted Stock				-				-				-		110,562		11		(11	)		-			-
Vesting of Restricted Stock				-				-				-		110,562		11		(11	)		-			-
Net Loss				-				-				-				-					(5,974,448	)		(5,974,448	)
Balance, June 30, 2022		8	$	-		1,234	$	-		50	$	-		37,020,518	$	3,702	$	132,575,805		$	(68,787,339	)	$	63,792,168
Balance, value		8	$	-		1,234	$	-		50	$	-		37,020,518	$	3,702	$	132,575,805		$	(68,787,339	)	$	63,792,168

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

F-3

AYRO, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

		1			2
	Six Months Ended
	June 30,
	2023			2022
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss		$ (11,479,002	)	$	(10,553,108	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		452,848			257,791
Loss on disposal of fixed asset		11,666			-
Stock-based compensation		508,869			591,663
Amortization of right-of-use asset		81,524			118,092
Bad debt expense		292,010			2,069
Unrealized (gain) loss on marketable securities		(198,215	)		35,580
Realized (gain) on marketable securities		(73,193	)		-
Impairment of inventory and prepaid		-			1,938,386
Change in operating assets and liabilities:
Accounts receivable		113,906			(955,609	)
Inventory		(2,079,590	)		325,282
Prepaid expenses and other current assets		(1,790,987	)		(785,762	)
Accounts payable		(405,979	)		164,809
Accrued expenses		(234,155	)		(838,304	)
Lease obligations - operating leases		(93,181	)		(132,403	)
Net cash used in operating activities		(14,893,479	)		(9,831,514	)

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment		(1,271,311	)		(414,197	)
Purchase of marketable securities, net		(9,343,804	)		(18,006,486	)
Purchase of intangible assets		(18,703	)		(17,500	)
Net cash used in investing activities		(10,633,818	)		(18,438,183	)

Net change in cash		(25,527,297	)		(28,269,697	)

Cash, beginning of period		39,096,562			69,160,466

Cash, end of period	$	13,569,265		$	40,890,769

Supplemental disclosure of cash and non-cash transactions:
Accrued Fixed Assets	$	194,335		$	-
Restricted Stock issued, previously accrued	$	-		$	329,381

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

F-4

AYRO, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 1. ORGANIZATION AND NATURE OF OPERATIONS

AYRO, Inc. (“AYRO” or the “Company”), a Delaware corporation formerly known as DropCar, Inc. (“DropCar”), a corporation headquartered outside Austin, Texas, is the merger successor discussed below of AYRO Operating Company, Inc. (“AYRO Operating”), which was formed under the laws of the State of Texas on May 17, 2016 as Austin PRT Vehicle, Inc. and subsequently changed its name to Austin EV, Inc. under an Amended and Restated Certificate of Formation filed with the State of Texas on March 9, 2017. On July 24, 2019, the Company changed its name to AYRO, Inc. and converted its corporate domicile to Delaware. The Company was founded on the basis of promoting resource sustainability. The Company, and its wholly owned subsidiaries, are principally engaged in manufacturing and sales of environmentally conscious, minimal-footprint electric vehicles. The all-electric vehicles are typically sold both directly to customers and to dealers in the United States.

Strategic Review

Following the hiring of the Company’s current Chief Executive Officer in the third quarter of 2021, AYRO initiated a strategic review of its product development strategy, as AYRO focused on creating value within the electric vehicle, last-mile delivery, smart payload and enabling infrastructure markets. In connection with the strategic review by the Company, AYRO cancelled development of its planned next-generation three-wheeled high-speed vehicle.

For the past several years, AYRO’s primary supplier has been Cenntro Automotive Group, Ltd. (“Cenntro”), which operates a large electric vehicle factory in the automotive district in Hangzhou, China. As a result of rising shipping costs, quality issues with certain components and persistent delays, the Company ceased production of the AYRO 411x from Cenntro in September 2022 in order to focus its resources on the development and launch of the new 411 fleet vehicle model year 2023 refresh (the “Vanish”).

In December of 2021 the Company began research and development on the Vanish, including updates on its supply chain evolution, offshoring/onshoring mix, manufacturing strategy, and annual model year refresh program.

F-5

NOTE 2. LIQUIDITY AND OTHER UNCERTAINTIES

Liquidity and Other Uncertainties

The unaudited condensed consolidated financial statements have been prepared in conformity with generally accepted accounting principles in the United States (“GAAP”), which contemplates continuation of the Company as a going concern. The Company is subject to a number of risks similar to those of earlier stage commercial companies, including dependence on key individuals and products, the difficulties inherent in the development of a commercial market, the potential need to obtain additional capital, competition from larger companies, other technology companies and other technologies. The Company has a limited operating history and the sales and income potential of its business and market are unproven. The Company incurred net losses of $11,479,002 for the six months ended June 30, 2023, and negative cash flows from operations of $14,893,479 for the six months ended June 30, 2023. On June 30, 2023, the Company had cash balances totaling $13,569,265 and marketable securities of $19,464,015. In addition, overall working capital decreased by $12,013,869 during the six months ended June 30, 2023. Management believes that the existing cash as of June 30, 2023, will be sufficient to fund operations for at least the next twelve months following the issuance of these unaudited condensed consolidated financial statements. Additionally, on August 7, 2023, the Company entered into a Securities Purchase Agreement to which it agreed to sell to certain existing investors (the “Investors”) an aggregate of 22,000 shares of the Company’s newly designated Series H-7 convertible preferred stock with a stated value of $1,000 per share (“Series H-7 Preferred Stock”). The Company raised approximately $22 million from the sale, which closed on August 10, 2023.

The Company may experience increases in the cost or a sustained interruption in the supply or shortage of raw materials, including lithium-ion battery cells, semiconductors, and integrated circuits. Any such increase or supply interruption could materially and negatively impact the business, prospects, financial condition, and operating results. Currently, the Company is experiencing supply chain shortages, including with respect to lithium-ion battery cells, integrated circuits, vehicle control chips, and displays. Certain production-ready components may be delayed in shipment to Company facilities which has and may continue to cause delays in validation and testing for these components, which would in turn create a delay in the availability of saleable vehicles.

The Company uses various raw materials, including aluminum, steel, carbon fiber, non-ferrous metals (such as copper), and cobalt. The prices for these raw materials fluctuate depending on market conditions, and global demand and could adversely affect business and operating results. For instance, the Company is exposed to multiple risks relating to price fluctuations for lithium-ion cells. These risks include:

●

the inability or unwillingness of current battery manufacturers to build or operate battery cell manufacturing plants to supply the numbers of lithium-ion cells required to support the growth of the electric vehicle industry as demand for such cells increases;

●

disruption in the supply of cells due to quality issues or recalls by the battery cell manufacturers; and

●

an increase in the cost of raw materials, such as cobalt, used in lithium-ion cells.

Any disruption in the supply of lithium-ion battery cells, semiconductors, or integrated circuits could temporarily disrupt production of the Company’s vehicles until a different supplier is fully qualified. Moreover, battery cell manufacturers may refuse to supply electric vehicle manufacturers if they determine that the vehicles are not sufficiently safe. Furthermore, fluctuations or shortages in petroleum and other economic conditions may cause the Company to experience significant increases in freight charges and raw material costs. Substantial increases in the prices for our raw materials would increase operating costs and could reduce our margins if the increased costs cannot be recouped through increased electric vehicle prices. There can be no assurance that the Company will be able to recoup the increasing costs of raw materials by increasing vehicle prices.

We have made certain indemnities, under which we may be required to make payments to an indemnified party, in relation to certain transactions. We indemnify our directors and officers to the maximum extent permitted under the laws of the State of Delaware. In connection with our facility leases, we have indemnified our lessors for certain claims arising from the use of the facilities. The duration of the indemnities vary and, in many cases, are indefinite. These indemnities do not provide for any limitation of the maximum potential future payments we could be obligated to make. Historically, we have not been obligated to make any payments for these obligations and no liabilities have been recorded for these indemnities.

On October 3, 2022, the Company received a letter from the Listing Qualifications Department of the Nasdaq Stock Market (“Nasdaq”) indicating that, based upon the closing bid price of the Company’s common stock for the 30 consecutive business day period between August 19, 2022 and September 30, 2022, the Company did not meet the minimum bid price of $1.00 per share required for continued listing on The Nasdaq Capital Market pursuant to Nasdaq Listing Rule 5550(a)(2) (the “Minimum Bid Price Requirement”). The letter also indicated that the Company will be provided with a compliance period of 180 calendar days, or until April 3, 2023 (the “Initial Compliance Period”), in which to regain compliance pursuant to Nasdaq Listing Rule 5810(c)(3)(A).

On April 4, 2023, the Company received a letter from Nasdaq notifying the Company that the Company has been granted an additional 180-day period, or until October 2, 2023, to regain compliance with the Minimum Bid Price Requirement. The new compliance period is an extension of the Initial Compliance Period provided for in Nasdaq’s deficiency notice to the Company dated October 3, 2022. Nasdaq’s determination was based on the Company meeting the continued listing requirement for market value of publicly held shares and all other applicable requirements for initial listing on the Nasdaq Capital Market, with the exception of the Minimum Bid Price Requirement, and the Company’s written notice of its intention to cure the deficiency during the second compliance period by effecting a reverse stock split, if necessary.

Management’s plan to regain compliance with the Minimum Bid Price Requirement is to seek stockholder approval for, and to file, an amendment to the Company’s amended and restated certificate of incorporation (“Certificate of Incorporation”) to effect a reverse stock split of the Company’s common stock at a ratio of 1-for-2 to 1-for-10 with the exact ratio within such range to be determined by the Company’s board of directors at its discretion (the “Reverse Stock Split Amendment”). On August 8, 2023, the Company filed a preliminary proxy statement in connection with a special meeting of the Company’s stockholders to be held on September 14, 2023 for the purpose of approving, among other things, the Reverse Stock Split Amendment.

If compliance with the Minimum Bid Price Requirement cannot be demonstrated by October 2, 2023, Nasdaq will provide written notification that the Company’s common stock could be delisted. In such an event, Nasdaq rules permit the Company to appeal any delisting determination to a Nasdaq Hearings Panel. Accordingly, there can be no assurance that the Company will be able to regain compliance with the Nasdaq listing rules or maintain its listing on Nasdaq.

F-6

NOTE 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation and Principles of Consolidation

The unaudited condensed consolidated financial statements represent the consolidation of the accounts of the Company and its subsidiary in conformity with GAAP. All intercompany accounts and transactions have been eliminated in consolidation.

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with GAAP and in conformity with the instructions on Form 10-Q and Rule 8-03 of Regulation S-X and the related rules and regulations of the Securities and Exchange Commission (“SEC”).

The unaudited condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. The unaudited condensed consolidated financial statements reflect all adjustments consisting of normal recurring accruals, which are, in the opinion of management, necessary for a fair presentation of such statements. The results of operations for the three and six months ended June 30, 2023, are not necessarily indicative of the results that may be expected for the entire year. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and the accompanying notes for the fiscal year ended December 31, 2022, which are included in the Company’s Annual Report on Form 10-K, filed with the SEC on March 23, 2023, as amended on May 1, 2023.

F-7

Use of Estimates

The preparation of the unaudited condensed consolidated financial statements, in conformity with GAAP, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the unaudited consolidated financial statements, and the reported amounts of revenue and expenses during the reporting period.

The Company’s most significant estimates include marketable securities, revenue recognition, and the measurement of stock-based compensation expenses. Actual results could differ from these estimates.

Marketable Securities

Marketable securities include investment in fixed income bonds and U.S. Treasury securities that are considered to be highly liquid and easily tradeable. The marketable securities are considered trading securities and are measured at fair value and are accounted for in accordance with ASC 320. The marketable securities are valued using inputs observable in active markets for identical securities and are therefore classified as Level 1 within the Company’s fair value hierarchy. The Company held $19,464,015 and $9,848,804 in marketable securities as of June 30, 2023 and December 31, 2022, respectively.

Revenue Recognition

The Company recognizes revenue in accordance with ASC 606, Revenue from Contracts with Customers, the core principle of which is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to receive in exchange for those goods or services.

To achieve this core principle, five basic criteria must be met before revenue can be recognized: (1) identify the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to performance obligations in the contract; and (5) recognize revenue when or as the Company satisfies a performance obligation.

Nature of goods and services

The following is a description of the Company’s products and services from which the Company generates revenue, as well as the nature, timing of satisfaction of performance obligations, and significant payment terms for each:

Product revenue

Product revenue from customer contracts is recognized on the sale of each electric vehicle as vehicles are shipped to customers. The majority of the Company’s vehicle sales orders generally have only one performance obligation: sale and delivery of complete vehicles. Ownership and risk of loss transfers to the customer based on FOB shipping point and freight charges are the responsibility of the customer. Revenue is typically recognized at the point control transfers or in accordance with payment terms customary to the business. The Company provides product warranties to assure that the product assembly complies with agreed upon specifications. The Company’s product warranty is similar in all material respects to the product warranties provided by the Company’s suppliers, therefore minimizing the warranty liability to the standard labor rates associated with the defective part replacement. Customers do not have the option to purchase a warranty separately; as such, warranty is not accounted for as a separate performance obligation. The Company’s policy is to exclude taxes collected from a customer from the transaction price of automotive contracts.

Shipping revenue

Amounts billed to customers related to shipping and handling are classified as shipping revenue. The Company has elected to recognize the cost for freight and shipping when control over vehicles has transferred to the customer as an operating expense. The Company has reported shipping expenses of $20,768 and $145,496 for the three months ended June 30, 2023, and 2022 and $41,334 and $256,045 for the six months ended June 30, 2023 and 2022 respectively, included in General and Administrative Expenses.

Services and other revenue

Services and other revenue consist of non-warranty after-sales vehicle services. Revenue is typically recognized at a point in time when services and replacement parts are provided.

Miscellaneous income

Miscellaneous income consists of late fees charged for receivables not paid within the terms of the customer agreement based upon the outstanding customer receivable balance. This revenue is earned when a customer’s receivable balance becomes delinquent, and its collection is reasonably assured and is calculated using a stated late fee rate multiplied by the outstanding balance that is subject to a late fee charge.

F-8

Stock-Based Compensation

The Company accounts for stock-based compensation in accordance with ASC 718, Compensation-Stock Compensation. The Company recognizes all employee and non-employee share-based compensation as an expense in the financial statements on a straight-line basis over the requisite service period, based on the terms of the awards. Equity-classified awards principally related to stock options, restricted stock awards (“RSAs”) and equity-based compensation, are measured at the grant date fair value of the award. The Company determines grant date fair value of stock option awards using the Black-Scholes option-pricing model. The fair value of RSAs is determined using the closing price of the Company’s common stock on the grant date. For service based vesting grants, expense is recognized ratably over the requisite service period based on the number of options or shares. For value-based vesting grants, expense is recognized via straight line expense over the expected period per grant as determined by outside valuation experts. Stock-based compensation is reversed for forfeitures in the period of forfeiture.

The Company estimates the fair value of stock-based and cash unit awards containing a market condition using a Monte Carlo simulation model. Key inputs and assumptions used in the Monte Carlo simulation model include the stock price of the award on the grant date, the expected term, the risk-free interest rate over the expected term, the expected annual dividend yield and the expected stock price volatility. The expected volatility is based on a combination of the historical and implied volatility of the Company’s publicly traded, near-the-money stock options, and the valuation period is based on the vesting period of the awards. The risk-free interest rate is derived from the U.S. Treasury yield curve in effect at the time of grant and, since the Company does not currently pay or plan to pay a dividend on its common stock, the expected dividend yield was zero.

Stock options and warrants issued as compensation for services provided to the Company are accounted for based upon the fair value of the underlying equity instrument. The attribution of the fair value of the equity instrument is charged directly to compensation expense over the period during which services are rendered.

Basic and Diluted Loss Per Share

Basic and diluted net loss per share is determined by dividing net loss by the weighted average ordinary shares outstanding during the period. For all periods presented with a net loss, the shares underlying the ordinary share options and warrants have been excluded from the calculation because their effect would be anti-dilutive. Therefore, the weighted-average shares outstanding used to calculate both basic and diluted loss per share is the same for periods with a net loss.

The following potentially dilutive securities have been excluded from the computation of diluted weighted average shares outstanding as they would be anti-dilutive:

F-9

The following potentially dilutive securities have been excluded from the computation of diluted weighted average shares outstanding as they would be anti-dilutive:

	2023		2022		2023		2022
	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Options to purchase common stock		732,422		788,546		732,422		788,546
Restricted stock unvested		1,120,502		781,686		1,120,502		781,686
Restricted stock vested - unissued		6,269		-		6,269		-
Warrants outstanding		5,969,595		6,106,023		5,969,595		6,106,023
Preferred stock outstanding		2,475		2,475		2,475		2,475
Total		7,831,263		7,678,730		7,831,263		7,678,730

NOTE 4. REVENUES

Disaggregation of Revenue

Revenue by type was as follows:

SCHEDULE OF DISAGGREGATION OF REVENUE

	2023		2022		2023			2022
	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023			2022
Revenue type
Product revenue	$	127,106	$	918,808	$	247,388		$	1,838,150
Shipping revenue		12,438		22,752		(4,150	)		130,255
Miscellaneous income		-		40,000		9,390			40,000
Total Revenue	$	139,544	$	981,560	$	252,628		$	2,008,405

Warranty Reserve

The Company records a reserve for warranty repairs upon the initial delivery of vehicles to its dealer network. The Company provides a product warranty on each vehicle including powertrain, battery pack and electronics package. Such warranty matches the product warranty provided by its supply chain for warranty parts for all unaltered vehicles and is not considered a separate performance obligation. The supply chain warranty does not cover warranty-based labor needed to replace a part under warranty. Warranty reserves include management’s best estimate of the projected cost of labor to repair/replace all items under warranty. The Company reserves a percentage of all dealer-based sales to cover an industry-standard warranty fund to support dealer labor warranty repairs. Such percentage is recorded as a component of cost of revenues in the statement of operations. As of June 30, 2023, and December 31, 2022, warranty reserves were recorded within accrued expenses of $395,071 and $410,017, respectively.

NOTE 5. ACCOUNTS RECEIVABLE, NET

Accounts receivable, net, consists of amounts due from invoiced customers and product deliveries and were as follows:

SCHEDULE OF ACCOUNTS RECEIVABLE

	June 30,		December 31,
	2023		2022
Trade receivables	$	104,155	$	512,420
Less: Allowance for doubtful accounts		-		(2,349	)
Accounts receivable, net	$	104,155	$	510,071

The Company reduced allowance for doubtful accounts by $2,349 for the three and six months ended June 30, 2023, and recorded $292,010 of bad debt expense due to direct write off balances due from Club Car, LLC (“Club Car”) for the six months ended June 30, 2023. The Company recorded $2,069 of bad debt expense for the three and six months ending June 30, 2022.

NOTE 6. INVENTORY

Inventory consisted of the following:

SCHEDULE OF INVENTORY

	June 30,		December 31,
	2023		2022
Raw materials	$	2,481,859	$	330,931
Work-in-progress		-		-
Finished goods		568,113		639,450
Total	$	3,049,972	$	970,381

For the three months ended June 30, 2023 and 2022, depreciation for fleet inventory was $0 and $23,883, and for the six months ended June 30, 2023 and 2022, was $0 and $47,775 respectively.

F-10

NOTE 7. PREPAID EXPENSES AND OTHER CURRENT ASSETS

	June 30,		December 31,
	2023		2022
Prepayments for inventory	$	2,603,057	$	1,174,466
Prepayments for insurance		274,724		118,434
Prepayments on advances on design		101,815		75,000
Prepayments on software		190,333		103,851
Prepaid other		99,902		7,094
Total Prepaid Expenses and Other Current Assets	$	3,269,831	$	1,478,845

NOTE 8. PROPERTY AND EQUIPMENT, NET

Property and equipment consisted of the following:

SCHEDULE OF PROPERTY AND EQUIPMENT, NET

	June 30,			December 31,
	2023			2022
Computer and equipment	$	3,211,535		$	1,970,001
Furniture and fixtures		395,705			323,789
Lease improvements		1,093,481			952,952
Computer software		455,875			455,875
Property and equipment, gross		5,156,596			3,702,617
Less: Accumulated depreciation		(1,955,336	)		(1,510,280	)
Property and equipment, net	$	3,201,260		$	2,192,337

Depreciation expense for the three months ended June 30, 2023 and 2022 was $254,160 and $98,913, and for the six months ended June 30, 2023 and 2022 was $444,966 and $183,405, respectively. The company recorded a loss on disposal for fixed assets of $11,666 for the three and six months ending June 30, 2023.

NOTE 9. ACCRUED EXPENSES

SCHEDULE OF ACCRUED EXPENSES

	June 30,		December 31,
	2023		2022
Accrued professional and consulting fees	$	122,964	$	410,711
Accrued payroll		392,079		6,000
Accrued warranty reserve		395,071		410,017
Accrued expenses other		-		138,209
Total accrued expenses	$	910,114	$

SEC Form 10-Q filed by AYRO Inc.