UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the quarterly period ended
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:
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
| (Address of principal executive offices) | (Zip Code) |
(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 | ||
| The
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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.
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).
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 | ☐ |
| ☒ | 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 ☐
As of August 12, 2021, the registrant had shares of common stock outstanding.
AYRO, Inc.
Quarter Ended June 30, 2021
Table of Contents
| i |
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
AYRO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
| June 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Inventory, net | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| Property and equipment, net | ||||||||
| Intangible assets, net | ||||||||
| Operating lease – right-of-use asset | ||||||||
| Deposits and other assets | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued expenses | ||||||||
| Contract liability | - | |||||||
| Current portion long-term debt, net | - | |||||||
| Current portion lease obligation – operating lease | ||||||||
| Total current liabilities | ||||||||
| Long-term debt, net | - | |||||||
| Lease obligation - operating lease, net of current portion | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies | ||||||||
| Stockholders’ equity: | ||||||||
| Preferred Stock, (authorized – shares) | - | - | ||||||
| Convertible Preferred Stock Series H, ($ par value; authorized – shares; issued and outstanding – shares as of June 30, 2021 and December 31, 2020) | ||||||||
| Convertible Preferred Stock Series H-3, ($ par value; authorized – shares; issued and outstanding – shares as of June 30, 2021 and December 31, 2020) | ||||||||
| Convertible Preferred Stock Series H-6, ($ par value; authorized – shares; issued and outstanding – shares as of June 30, 2021 and December 31, 2020) | ||||||||
| Common Stock, ($par value; authorized – shares; issued and outstanding – and shares, as of June 30, 2021 and December 31, 2020) | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ equity | ||||||||
| Total liabilities and stockholders’ equity | $ | $ | ||||||
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)
| Three Months Ended | Six Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Revenue | $ | $ | $ | $ | ||||||||||||
| Cost of goods sold | ||||||||||||||||
| Gross profit | ||||||||||||||||
| Operating expenses: | ||||||||||||||||
| Research and development | ||||||||||||||||
| Sales and marketing | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income (expense): | ||||||||||||||||
| Other income, net | ||||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Loss on extinguishment of debt | ( | ) | ( | ) | ||||||||||||
| Other income (expense), net | ( | ) | ( | ) | ||||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Net loss per share, basic and diluted | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Basic and diluted weighted average Common Stock outstanding | ||||||||||||||||
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)
| Series H | Series H-3 | Series H-6 | AYRO Series Seed | Additional | |||||||||||||||||||||||||||||||||||||||||||||
| Preferred Stock | Preferred Stock | Preferred Stock | Preferred Stock | Common Stock | Paid-in | Accumulated | |||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Capital | (Deficit) | Total | |||||||||||||||||||||||||||||||||||||
| Balance, December 31, 2020 | $ | $ | $ | - | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||||||||||||||||||||
| Stock Based Compensation | |||||||||||||||||||||||||||||||||||||||||||||||||
| Sale of common stock, net of fees | - | ||||||||||||||||||||||||||||||||||||||||||||||||
| Exercise Warrants | |||||||||||||||||||||||||||||||||||||||||||||||||
| Exercise Options | |||||||||||||||||||||||||||||||||||||||||||||||||
| Net Loss | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||||||||
| Balance, March 31, 2021 | - | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock for services | |||||||||||||||||||||||||||||||||||||||||||||||||
| Stock Based Compensation | - | ||||||||||||||||||||||||||||||||||||||||||||||||
| Exercise Options | |||||||||||||||||||||||||||||||||||||||||||||||||
| Restricted stock vesting | ( | ||||||||||||||||||||||||||||||||||||||||||||||||
| Net Loss | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||||||||
| Balance, June 30, 2021 | $ | $ | $ | - | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||||||||||||||||||||
| Series H | Series H-3 | Series H-6 | AYRO Series Seed | Additional | ||||||||||||||||||||||||||||||||||||||||||||||||
| Preferred Stock | Preferred Stock | Preferred Stock | Preferred Stock | Common Stock | Paid-in | Accumulated | ||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Capital | (Deficit) | Total | ||||||||||||||||||||||||||||||||||||||||
| Balance, December 31, 2019 | - | - | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||||||||||||||||||||||||
| Stock Based Compensation | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net Loss | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||||
| Balance, March 31, 2020 | $ | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||||||||||||
| Conversion of AYRO Preferred Stock to common stock | ( | ) | ( | ) | - | |||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of Series H Preferred Stock in connection with the 2020 Merger | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of Series H-3 Preferred Stock in connection with the 2020 Merger | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of Series H-6 Preferred Stock in connection with the 2020 Merger | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of Common Stock in connection with the 2020 Merger, net of fees | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Exchange of debt for common stock in connection with the 2020 Merger | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of common stock in connection with debt offering | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Sale of common stock, net of fees | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Exercise of warrants, net of fees | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock Based Compensation | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net Loss | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||||||||||
| Balance, June 30, 2020 | $ | $ | $ | - | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
| F-3 |
AYRO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
| Six Months Ended | ||||||||
| June 30, | ||||||||
| 2021 | 2020 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net loss | $ | ( | $ | ( | ) | |||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Stock-based compensation | ||||||||
| Amortization of debt discount | ||||||||
| Loss on extinguishment of debt | ||||||||
| Amortization of right-of-use asset | ||||||||
| Provision for bad debt expense | ||||||||
| Change in operating assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ( | ) | ||||
| Inventory | ( | ) | ||||||
| Prepaid expenses and other current assets | ( | ) | ||||||
| Deposits | ( | ) | ||||||
| Accounts payable | ||||||||
| Accrued expenses | ( | ) | ||||||
| Contract liability | ( | ) | ||||||
| Lease obligations - operating leases | ( | ) | ( | ) | ||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Purchase of property and equipment | ( | ) | ( | ) | ||||
| Purchase of intangible assets | ( | ) | ( | ) | ||||
| Proceeds from merger with ABC Merger Sub, Inc. | ||||||||
| Net cash provided by (used in) investing activities | ( | ) | ||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Proceeds from issuance debt | ||||||||
| Repayments of debt | ( | ) | ( | ) | ||||
| Proceeds from exercise of warrants | ||||||||
| Proceeds from exercise of stock options | ||||||||
| Proceeds from issuance of common stock, net of fees and expenses | ||||||||
| Net cash provided by financing activities | ||||||||
| Net change in cash | ||||||||
| Cash, beginning of period | ||||||||
| Cash, end of period | $ | $ | ||||||
| Supplemental disclosure of cash and non-cash transactions: | ||||||||
| Cash paid for interest | $ | $ | ||||||
| Cash paid for taxes | $ | $ | ||||||
| Supplemental non-cash amounts of lease liabilities arising from obtaining right of use assets | $ | $ | ||||||
| Conversion of debt to Common Stock | $ | $ | ||||||
| Conversion of Preferred Stock to Common Stock | $ | $ | ||||||
| Discount on debt from issuance of Common Stock and warrants | $ | $ | ||||||
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., 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 Articles 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 and to dealers in the United States.
Merger
On
May 28, 2020, pursuant to the previously announced Agreement and Plan of Merger, dated December 19, 2019 (the “Merger Agreement”),
by and among AYRO, Inc., a Delaware corporation previously known as DropCar, Inc., ABC Merger Sub, Inc., a Delaware corporation and a
wholly owned subsidiary of the Company (“Merger Sub”), and AYRO Operating Company (“AYRO Operating”), a Delaware
corporation previously known as AYRO, Inc., Merger Sub was merged with and into AYRO Operating, with AYRO Operating continuing after
the merger as the surviving entity and a wholly owned subsidiary of the Company (the “Merger”). At the effective time of
the Merger, without any action on the part of any stockholder, each issued and outstanding share of AYRO Operating’s common stock,
par value $ per share (“AYRO Operating Common Stock”), including shares underlying AYRO Operating’s outstanding
equity awards and warrants, was converted into the right to receive
The Merger was treated as a reverse recapitalization effected by a share exchange for financial accounting and reporting purposes because substantially all of DropCar, Inc.’s operations were disposed of as part of the consummation of the Merger and therefore no goodwill or other intangible assets were recorded by the Company as a result of the Merger. AYRO Operating was treated as the accounting acquirer as its stockholders controlled the Company after the Merger, even though DropCar, Inc. was the legal acquirer. As a result, the assets and liabilities and the historical operations that are reflected in our consolidated financial statements are those of AYRO Operating as if AYRO Operating had always been the reporting company.
| F-5 |
On December 19, 2019, DropCar entered into an asset purchase agreement (the “Asset Purchase Agreement”) with DC Partners Acquisition, LLC (“DC Partners”), Spencer Richardson and David Newman, pursuant to which DropCar agreed to sell substantially all of the assets associated with its business of providing vehicle support, fleet logistics and concierge services for both consumers and the automotive industry to an entity controlled by Messrs. Richardson and Newman, the Company’s Chief Executive Officer and Chief Business Development Officer at the time, respectively. The aggregate purchase price for the purchased assets consisted of the cancellation of certain liabilities pursuant to those certain employment agreements by and between DropCar and each of Messrs. Richardson and Newman, plus the assumption of certain liabilities relating to, or arising out of, workers’ compensation claims that occurred prior to the closing date of the Asset Purchase Agreement.
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 $
Since early 2020, when the World Health Organization declared the spread of the transmissible and pathogenic coronavirus a global pandemic, there have been business slowdowns and decreased demand for AYRO products. The outbreak of such a communicable disease has resulted in a widespread health crisis which has adversely affected general commercial activity and the economies and financial markets of many countries, including the United States. As the outbreak of the disease has continued through 2020 and into 2021, the measures taken by the governments of countries affected has adversely affected the Company’s business, financial condition, and results of operations. The pandemic had an adverse impact on AYRO’s sales and the demand for AYRO products in 2020 and in the first and second quarters of 2021, resulting in sales that were less than expected in the first half of 2021. AYRO expects the pandemic to continue to have an adverse impact on sales and demand for products throughout the remainder of 2021.
NOTE 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Principles of 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”).
| F-6 |
The unaudited condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, AYRO Operating and DropCar Operating Company, Inc. 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, 2021, 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, 2020, which are included in the Company’s Annual Report on Form 10-K, filed with the SEC on March 31, 2021, as amended on April 30, 2021.
Use of Estimates
The preparation of the accompanying 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 accompanying unaudited condensed consolidated financial statements, and the reported amounts of revenue and expenses during the reporting period.
The Company’s most significant estimates include allowance for doubtful accounts, valuation of inventory reserve, valuation of deferred tax asset allowance, and the measurement of stock-based compensation expenses. Actual results could differ from these estimates.
Reclassification
Certain reclassifications have been made to the prior period financial statements to conform to the current period financial statement presentation. These reclassifications had no effect on net earnings or cash flows as previously reported.
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 identical 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 $
Subscription revenue
Subscription revenue from revenue sharing with Destination Fleet Operators (“DFO”) and other vehicle rental agreements is recorded in the month the vehicles in the Company’s fleet is rented. The Company established its rental fleet in late March 2019 which is recorded in the property and equipment section of the accompanying unaudited condensed consolidated balance sheets. For the rental fleet, the Company retains title and ownership to the vehicles and places them in DFO’s in resort communities that typically rent golf cars for use in those communities. In August 2020, the Company phased-out the production of its 311 line which were the vehicles used in the rental offering as it is working to develop a new line of vehicles. The change in production did not represent a strategic shift that will have a major effect on the Company’s operations or financial results.
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.
The accounting treatment of warrants and preferred share series issued is determined pursuant to the guidance provided by ASC 470, Debt, ASC 480, Distinguishing Liabilities from Equity, and ASC 815, Derivatives and Hedging, as applicable. Each feature of a freestanding financial instruments including, without limitation, any rights relating to subsequent dilutive issuances, dividend issuances, equity sales, rights offerings, forced conversions, optional redemptions, automatic monthly conversions, dividends and exercise are assessed with determinations made regarding the proper classification in the Company’s financial statements.
The Company accounts for stock-based compensation in accordance with ASC 718, Compensation-Stock Compensation (“ASC 718”). The Company recognizes all 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. Stock-based compensation is reversed for forfeitures in the period of forfeiture.
In June 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Unit (“ASU”) 2018-07, Compensation - Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting (“ASU 2018-07”). ASU 2018-07 expands the guidance in ASC 718 to include share-based payments for goods and services to non-employees and generally aligns it with the guidance for share-based payments to employees. In accordance with ASU 2018-07, these 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.
| F-7 |
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 are the same for periods with a net loss. “Penny warrants” were included in the calculation of outstanding shares for purposes of basic earnings per share.
On
May 28, 2020, pursuant to the previously announced Merger Agreement, dated December 19, 2019, the Company issued prefunded common stock
warrants to purchase
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Options to purchase common stock | ||||||||||||||||
| Restricted Stock Unvested | ||||||||||||||||
| Series H-1, H-3, H-4, H-5, I, J, pre-merger AYRO Merger common stock purchase warrants and post-merger AYRO warrants issued | ||||||||||||||||
| Series H, H-3, H-6, and pre-merger AYRO Seed Preferred Stock | ||||||||||||||||
| Totals | ||||||||||||||||
NOTE 4. REVENUES
Disaggregation of Revenue
Revenue by type was as follows:
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Revenue type | ||||||||||||||||
| Product revenue | $ | $ | $ | $ | ||||||||||||
| Shipping revenue | ||||||||||||||||
| Subscription revenue | ||||||||||||||||
| Service income | ||||||||||||||||
| $ | $ | $ | $ | |||||||||||||
| F-8 |
Contract Liabilities
The Company recognizes a contract liability when a 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 or services to a customer for which the Company has received consideration, or an amount of consideration is due from the customer.
The table below details the activity in the Company’s contract liabilities as of June 30, 2021 and December 31, 2020. The balance at the end of each period is reported as contract liability in the Company’s unaudited condensed consolidated balance sheet.
| Six Months Ended June 30, | Year Ended December 31, | |||||||
| 2021 | 2020 | |||||||
| Balance, beginning of period | $ | $ | ||||||
| Additions | ||||||||
| Transfer to revenue | ( | ) | ( | ) | ||||
| Balance, end of period | $ | $ | ||||||
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, 2021 and December 31, 2020,
warranty reserves were recorded within accrued expenses of $
NOTE 5. ACCOUNTS RECEIVABLE, NET
Accounts receivable, net, consists of amounts due from invoiced customers and product deliveries and were as follows:
| June 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Trade receivables | $ | $ | ||||||
| Less: Allowance for doubtful accounts | ( | ) | ( | ) | ||||
| $ | $ | |||||||
NOTE 6. INVENTORY, NET
Inventory consisted of the following:
| June 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Raw materials | $ | $ | ||||||
| Work-in-progress | - | - | ||||||
| Finished goods | ||||||||
| $ | $ | |||||||
| F-9 |
Depreciation
expense for fleet inventory for the three months ended June 30, 2021 and 2020 was $
NOTE 7. PREPAID EXPENSES AND OTHER CURRENT ASSETS
| June 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Prepaid final assembly services | $ | $ | ||||||
| Prepayments for inventory | ||||||||
| Prepaid other | ||||||||
| $ | $ | |||||||
NOTE 8. PROPERTY AND EQUIPMENT, NET
Property and equipment consisted of the following:
| June 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Computer and equipment | $ | $ | ||||||
| Furniture and fixtures | ||||||||
| Lease improvements | ||||||||
| Prototypes | ||||||||
| Computer software | ||||||||
| Less: Accumulated depreciation | ( | ) | ( | ) | ||||
| $ | $ | |||||||
Depreciation
expense for the three months ended June 30, 2021 and 2020 was $
NOTE 9. INTANGIBLE ASSETS, NET
Intangible assets consisted of the following:
| June 30, 2021 | ||||||||||||||||
| Weighted- | ||||||||||||||||
| Net | Average | |||||||||||||||
| Gross | Accumulated | Carrying | Amortization | |||||||||||||
| Amount | Amortization | Amount | Period | |||||||||||||
| Supply chain development | $ | $ | ( | ) | $ | |||||||||||
| Patents and trademarks | ( | ) | ||||||||||||||
| $ | $ | ( | ) | $ | ||||||||||||
| December 31, 2020 | ||||||||||||||||
| Weighted- | ||||||||||||||||
| Net | Average | |||||||||||||||
| Gross | Accumulated | Carrying | Amortization | |||||||||||||
| Amount | Amortization | Amount | Period | |||||||||||||
| Supply chain development | $ | $ | ( | ) | $ | |||||||||||
| Patents | ( | ) | ||||||||||||||
| $ | $ | ( | ) | $ | ||||||||||||
| F-10 |
Amortization
expense for the three months ended June 30, 2021 and 2020, was $
NOTE 10. STOCKHOLDERS’ EQUITY
Common Stock
In
April 2020, the Company issued shares of common stock in connection with the issuance of the 2020 $
On
June 17, 2020, the Company entered into a Securities Purchase Agreement with certain existing investors, pursuant to which the Company
sold, in a registered public offering by the Company directly to the investors an aggregate of shares of common stock, par
value $ per share, at an offering price of $ per share for gross proceeds of $
On
July 6, 2020, the Company entered into a Securities Purchase Agreement with certain existing investors, pursuant to which the Company
sold, in a registered public offering by the Company directly to the investors an aggregate of shares of common stock, par
value $ per share, at an offering price of $ per share for gross proceeds of $
On
July 21, 2020, the Company entered into a Securities Purchase Agreement with certain existing investors, pursuant to which the Company
sold, in a registered public offering by the Company directly to the investors an aggregate of shares of common stock, par
value $ per share, at an offering price of $ per share for gross proceeds of $
During July 2020, the Company issued shares of common stock from the conversion of shares of Series H-6 Preferred Stock.
On
November 22, 2020, the Company entered into a Securities Purchase Agreement with certain institutional and accredited investors, pursuant
to which such stockholders agreed to purchase an aggregate of shares of AYRO common stock, par value $ per share, at
an offering price of $ per share, for gross proceeds of approximately $
During
the year ended December 31, 2020, the Company issued shares of common stock from the exercise of
During
the year ended December 31, 2020, the Company issued shares of common stock from the conversion of the 2019 $
During
the year ended December 31, 2020, the Company issued shares of common stock from the closing of the Merger in consideration
for $
During
the year ended December 31, 2020, the Company issued shares of common stock, par value $ per share, for proceeds of $
| F-11 |
During the year ended December 31, 2020, the Company issued shares of common stock to advisors in connection with the Merger.
In
December 2020, based on its contract, the Company agreed to issue shares of common stock to COR Prominence LLC, the Company’s
investor relations firm. The shares were immediately vested and were issued in April 2021. An expense of $
During the year ended December 31, 2020, the Company issued shares of the common stock from the conversion of shares of AYRO Seed Preferred Stock.
During the year ended December 31, 2020, the Company issued shares of common stock from the exercise of stock options and received cash proceeds of $.
During the year ended December 31, 2020, the Company issued shares of common stock from the conversion of shares of H-3 Preferred Stock.
On
January 25, 2021, AYRO entered into a Securities Purchase Agreement with certain institutional and accredited investors, pursuant to
which AYRO agreed to issue and sell in a registered direct offering (the “January 2021 Offering”) an aggregate of
shares of common stock of AYRO, par value $ per share, at an offering price of $ per share, for gross proceeds of $
On
February 11, 2021, AYRO entered into a Securities Purchase Agreement with certain institutional and accredited investors, pursuant to
which AYRO agreed to issue and sell in a registered direct offering (the “February 2021 Offering”) an aggregate of
shares of common stock of AYRO, par value $ per share, at an offering price of $ per share, for gross proceeds of $
On March 17, 2021, in connection with that certain Agreement and Plan of Merger dated December 19, 2019, whereby certain former stockholders of AYRO Operating entered into lock-up agreements (collectively, the “May Lock-Up Agreements”) pursuant to which they agreed to certain restrictions on the transfer or sale of shares of the Company’s common stock for the one-year period following the Merger, AYRO modified the May Lock-Up Agreements to allow each stockholder party to a May Lock-Up Agreement to As of May 28, 2021, all of the May Lock-up Agreements were expired.
Pursuant
to the Securities Purchase Agreement dated July 21, 2020, during the six months ended June 30, 2021 investors purchased 302,500 of the
Additional Shares of common stock of AYRO, par value $ per share, at an offering price of $ per share, for gross proceeds of
$
During
February 2021, the Company issued
During
the six months ended June 30, 2021, the Company issued
During
the six months ended June 30, 2021, the Company issued
| F-12 |
Restricted Stock
During the year ended December 31, 2020, the Company issued shares of restricted common stock valued based on the stock price at the date of issuance with a weighted average price of $ per share, pursuant to the AYRO, Inc. 2020 Long-Term Incentive Plan, See Note 11. Of which shares were vested during the year ended December 31, 2020. On February 24, 2021, pursuant to the AYRO, Inc. 2020 Long-Term Incentive Plan, the Company issued shares of restricted stock to non-executive directors at a value of $ per share. During the six month ended June 30, 2021, 681,724 additional shares vested. The Company recognized stock-based compensation expense during the three and six months ended June 30, 2021 of $ and $, respectively.
Preferred Stock
Upon closing of the Merger, the Company assumed the Series H, H-3 and H-6 preferred stock of DropCar, Inc., which respective conversion prices have been adjusted to reflect the May 2020 one-for-five reverse split.
Series H Convertible Preferred Stock
Under
the terms of the Series H Certificate of Designation, each share of the Company’s Series H Convertible Preferred Stock (the “Series
H Preferred Stock”) has a stated value of $ and is convertible into shares of the Company’s Common Stock, equal to the
stated value divided by the conversion price of $
As of June 30, 2021, such payment would be calculated as follows:
| Number of Series H Preferred Stock outstanding as of June 30, 2021 | ||||
| Multiplied by the stated value | $ | |||
| Equals the gross stated value | $ | |||
| Divided by the conversion price | $ | |||
| Equals the convertible shares of Company Common Stock | ||||
| Multiplied by the fair market value of Company Common Stock as of June 30, 2021 | $ | |||
| Equals the payment | $ |
Series H-3 Convertible Preferred Stock
Pursuant to the Series H-3 Certificate of Designation (as defined below), the holders of the Company’s Series H-3 Convertible Preferred Stock (the “Series H-3 Preferred Stock”) are entitled to elect up to two members of a seven-member Board, subject to certain step downs; pursuant to the Series H-3 securities purchase agreement, the Company agreed to effectuate the appointment of the designees specified by the Series H-3 investors as directors of the Company.
Under
the terms of the Series H-3 Certificate of Designation, each share of the Series H-3 Preferred Stock has a stated value of $ and is
convertible into shares of common stock, equal to the stated value divided by the conversion price of $
| F-13 |
In the event of liquidation, the holders of the Series H-3 Preferred Stock are entitled, pari passu with the holders of common stock, to receive a payment in the amount the holder would receive if such holder converted the Series H-3 Preferred Stock into common stock immediately prior to the date of such payment.
As of June 30, 2021, such payment would be calculated as follows:
| Number of Series H-3 Preferred Stock outstanding as of June 30, 2021 | ||||
| Multiplied by the stated value | $ | |||
| Equals the gross stated value | $ | |||
| Divided by the conversion price | $ | |||
| Equals the convertible shares of Company Common Stock | ||||
| Multiplied by the fair market value of Company Common Stock as of June 30, 2021 | $ | |||
| Equals the payment | $ |
Series H-6 Convertible Preferred Stock
On
February 5, 2020, the Company filed the Certificate of Designations, Preferences and Rights of the Series H-6 Preferred Stock (the “Series
H-6 Certificate of Designation”) with the Secretary of State of the State of Delaware, establishing and designating the rights,
powers and preferences of the Series H-6 Preferred Stock. The Company designated up to shares of Series H-6 Preferred Stock and
each share has a stated value of $ (the “H-6 Stated Value”).
The
Series H-6 Preferred Stock also has the same voting rights as the common stock, except that in no event shall a holder of Series H-6
Preferred Stock be permitted to exercise a greater number of votes than such holder would have been entitled to cast if the Series H-6
Preferred Stock had immediately been converted into shares of common stock at a conversion price equal to $
The holders of Series H-6 Preferred Stock are entitled to certain anti-dilution adjustments if the Company issues shares of its common stock at a lower price per share than the applicable conversion price of the Series H-6 Preferred Stock. If any such dilutive issuance occurs prior to the conversion of the Series H-6 Preferred Stock, the conversion price will be adjusted downward to a price that cannot be less than 20% of the exercise price of $3.60.
In the event of liquidation, the holders of the Series H-6 Preferred Stock are entitled, pari passu with the holders of common stock, to receive a payment in the amount the holder would receive if such holder converted the Series H-6 Preferred Stock into common stock immediately prior to the date of such payment.
As of June 30, 2021, such payment would be calculated as follows:
| Number of Series H-6 Preferred Stock outstanding as of June 30, 2021 | ||||
| Multiplied by the stated value | $ | |||
| Equals the gross stated value | $ | |||
| Divided by the conversion price | $ | |||
| Equals the convertible shares of Company Common Stock | ||||
| Multiplied by the fair market value of Company Common Stock as of June 30, 2021 | $ | |||
| Equals the payment | $ |
| F-14 |
Warrants
AYRO Seed Warrants
Prior
to the Merger, the Company issued
Series I, J, H, H-1, H-3, H-4 and H-5 warrants transferred to AYRO common stock pursuant to the Merger.
Series I Warrants
As
a result of the Merger,
Series H-3 Warrants
As
a result of the Merger,
Exercise of Series H-4 Warrants and Issuance of Series J Warrants
Series H-4 Warrants
As
a result of the Merger,
As
a result of the Merger,
| F-15 |
Series H-5 Warrants
As
a result of the Merger,
The
Company considers the change in exercise price due to the anti-dilution trigger related to the Series H-5 Warrants to be of an equity
nature, as the issuance allowed the warrant holders to exercise warrants in exchange for common stock, which represents an equity for
equity exchange. Therefore, the change in the fair value before and after the effect of the anti-dilution triggering event and the fair
value of the Series H-5 warrants will be treated as a deemed dividend in the amount of $
The warrants were valued using the Black-Scholes option pricing model on the date of the modification and issuance using the following assumptions: (a) fair value of common stock of $2.77 per share, (b) expected volatility of %, (c) dividend yield of %, (d) risk-free interest rate of %, and (e) expected life of 5 years. The Series H-5 Warrants were exercisable beginning June 6, 2020.
The
Series H-1, H-3, H-4, J and H-5
Other AYRO Warrants
On
June 19, 2020, the Company agreed to issue finder warrants (the “June Finder Warrants”) to purchase
On
July 8, 2020, the Company agreed to issue finder warrants (the “July 8 Finder Warrants”) to purchase
The
July 8 Finder Warrants and July 8 Placement Agent Warrants terminate after a period of
On
July 22, 2020, the Company agreed to issue warrants to Palladium (the “July 22 Placement Agent Warrants”) to purchase
| F-16 |
On
September 25, 2020, the Company issued a warrant (the “September Warrant”) to purchase
The following assumptions were used to determine the fair value of the September Warrants:
| As of September 25, 2020 | ||||
| Dividend | % | |||
| Risk Free Rate | % | |||
| Exercise Price | $ | |||
| Strike Price | $ | |||
| Term | .00 | |||
| Volatility | % | |||
On
November 22, 2020, the Company entered into a Securities Purchase Agreement with new and current stockholders of the Company, pursuant
to which such stockholders agreed to purchase shares of AYRO’s Common Stock, Series A Warrants and Series B Warrants to purchase
AYRO’s Common Stock for an aggregate purchase price of $
On
November 22, 2020, the Company agreed to issue finder
warrants (the “November Finder Warrants”) to purchase
On
January 25, 2021, AYRO entered into a Securities Purchase Agreement with certain institutional and accredited investors, pursuant to
which AYRO agreed to issue and sell in a registered direct offering (the “January 2021 Offering”) an aggregate of
shares of common stock of AYRO, par value $ per share, at an offering price of $ per share, for gross proceeds of approximately
$
Each
purchaser was also granted a warrant to purchase, between July 26, 2021 and July 26, 2023, additional shares of common stock equal to
the full amount of the common stock it purchased at the initial closing, or an aggregate of shares at an exercise price of
$
On
January 25, 2021, the Company agreed to issue warrants to Palladium, the placement agent for the January 2021 offering to purchase
| F-17 |
On
February 11, 2021, the Company agreed to issue warrants to Spartan Capital Securities, LLC and its affiliates (the “February Finder
Warrants”) to purchase
A summary of the Company’s warrants to purchase common stock activity is as follows:
| Shares Underlying Warrants | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term (in years) | ||||||||||
| Outstanding at December 31, 2020 | $ | |||||||||||
| Granted | $ | |||||||||||
| Exercised | ( | ) | $ | |||||||||
| Expired | ( | ) | $ | |||||||||
| Outstanding at June 30, 2021 | $ | |||||||||||
AYRO 2020 Long Term Incentive Plan
On May 28, 2020, the Company’s shareholders approved the AYRO, Inc. 2020 Long Term Incentive Plan for future grants of incentive stock options, nonqualified stock, stock appreciation rights, restricted stock, restricted stock units, performance and other awards. The Company has reserved a total of shares of its common stock pursuant to the AYRO, Inc. 2020 Long-Term Incentive Plan, including shares of restricted stock that have been issued. The Company has stock options, restricted stock and warrants remaining under this plan as of June 30, 2021.
AYRO 2017 Long Term Incentive Plan
Prior to the Merger, the Company granted stock options and warrants pursuant to the 2017 Long Term Incentive Plan effective January 1, 2017. As of June 30, 2021, the 2017 Long Term Incentive Plan remains active, but no additional awards may be granted.
DropCar Amended and Restated 2014 Equity Incentive Plan
The DropCar Amended and Restated 2014 Equity Incentive Plan was amended in 2018 to increase the number of shares of Company common stock available for issuance. Pursuant to the 2014 Equity Incentive Plan (the “2014 Plan”), shares of common stock were reserved for issuance and there are options to purchase shares outstanding as of June 30, 2021. As of June 30, 2021, there were shares available for grant under the 2014 Plan.
| F-18 |
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Research and development | $ | $ | $ | $ | ||||||||||||
| Sales and marketing | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
Options
| Number of Shares | Weighted Average Exercise Price | Contractual Life (Years) | ||||||||||
| Outstanding at December 31, 2020 | $ | |||||||||||
| Exercised | ( | ) | ( | ) | ||||||||
| Forfeitures | ( | ) | ( | ) | ||||||||
| Outstanding at June 30, 2021 | $ | |||||||||||
Of the outstanding options, were vested and exercisable as of June 30, 2021. At June 30, 2021 the aggregate intrinsic value of stock options vested and exercisable was $.
The Company recognized $ and $ of stock option expense for the three months ended June 30, 2021 and June 30, 2020, and $ and $ for the six months ended June 30, 2021 and June 30, 2020, respectively. Total compensation cost related to non-vested stock option awards not yet recognized as of June 30, 2021 was $ and will be recognized on a straight-line basis through the end of the vesting periods through October 2023. The amount of future stock option compensation expense could be affected by any future option grants or by any forfeitures.
Determining the appropriate fair value of the stock-based awards requires the input of subjective assumptions, including the fair value of the Company’s common stock, and for stock options, the expected life of the option, and the expected stock price volatility. The Company uses the Black-Scholes option pricing model to value its stock option awards. The assumptions used in calculating the fair value of stock-based awards represent management’s best estimates and involve inherent uncertainties and the application of management’s judgment. As a result, if factors change and management uses different assumptions, stock-based compensation expense could be materially different for future awards.
| Six Months Ended June 30, | ||||||||
| 2021 | 2020 | |||||||
| Expected life (years) | N/A | |||||||
| Risk-free interest rate | N/A | % | ||||||
| Expected volatility | N/A | % | ||||||
| Total grant date fair value | $ | N/A | $ | |||||
The expected life of the employee stock options was estimated using the “simplified method,” as the Company has no historical information to develop reasonable expectations about future exercise patterns and employment duration for its stock option grants. No employee stock options were awarded in the six months ended June 30, 2021.
| F-19 |
The simplified method is based on the average of the vesting tranches and the contractual life of each grant. The expected life of awards that vest immediately use the contractual maturity since they are vested when issued. For stock price volatility, the Company uses public company compatibles and historical private placement data as a basis for its expected volatility to calculate the fair value of option grants. The risk-free interest rate is based on U.S. Treasury notes with a term approximating the expected life of the option at the grant-date.
Restricted Stock
Number of Shares | Weighted Average Grant Price | |||||||
| Outstanding at December 31, 2020 | $ | |||||||
| Granted | ||||||||
| Vested | ( | ) | ||||||
| Forfeitures | ( | ) | ||||||
| Outstanding at June 30, 2021 | $ | |||||||
In September 2020, the Company issued shares of restricted stock to non-executive directors, of which immediately vested and the remainder to During May 2021, of the remaining outstanding restricted stock vested and were forfeited. The Company recognized compensation expense during the three and six months ended June 30, 2021 of $ and $, respectively.
In December 2020, based on objectives achieved, the Company issued shares of restricted stock to Rodney C. Keller, Jr. (“the “Keller Restricted Stock”) that vest according to Compensation expense recognized for the Keller Restricted Stock for the three and six months ended June 30, 2021 was $ and $, respectively. Total compensation cost related to non-vested restricted stock not yet recognized as of June 30, 2021 was $ and will be recognized on a straight-line basis through the end of the vesting periods through December 4, 2022.
On February 24, 2021, pursuant to the AYRO, Inc. 2020 Long-Term Incentive Plan, the Company issued shares of restricted stock to non-executive directors at a value of $ per share. The Company recognized compensation expense during the three and six months ended June 30, 2021 of $ and $. Total compensation cost related to non-vested restricted stock not yet recognized as of June 30, 2021 was $ and will be recognized on a straight-line basis through the end of the vesting periods through December 31, 2021.
Other Share-Based Payments
The Company granted stock warrants pursuant to the 2017 Long Term Incentive Plan (“LTIP”) effective January 1, 2017. The Company measured consultant stock-based awards at grant-date fair value and recognizes contractor consulting expense for contractor warrants on a straight-line method basis over the vesting period of the award. Grants to consultants are expensed at the earlier of (i) the date at which a commitment for performance by the service provider to earn the equity instrument is reached and (ii) the date at which the service provider’s performance is complete.
The
Company recognized $
| F-20 |
NOTE 12. CONCENTRATIONS AND CREDIT RISK
Revenues
In
March 2019, the Company entered into a five-year Master Procurement Agreement, or the MPA, with Club Car for the sale of AYRO’s
four-wheeled vehicle. The MPA grants Club Car the exclusive right to sell AYRO’s four-wheeled vehicle in North America, provided
that Club Car orders at least 500 vehicles per year. Although Club Car did not meet the volume threshold for 2020, we currently do not
intend to sell our four-wheeled vehicles other than exclusively through Club Car. The MPA has an initial term of five (5) years commencing
January 1, 2019 and may be renewed by Club Car for successive one-year periods upon 60 days’ prior written notice. For the six
months ended June 30, 2021 and 2020, two customers accounted for the Company’s revenues, one for
Accounts Receivable
As
of June 30, 2021 and December 31, 2020, two customers accounted for more than 10% of the Company’s accounts receivable. One customer
accounted for approximately
Purchasing
The Company places orders with various suppliers. During the six months ended June 30, 2021 and 2020, two suppliers provided more than 10% of the Company’s raw materials purchases. During the six months ended June 30, 2021, one supplier, Cenntro, accounted for approximately % and another supplier accounted for approximately %. The Company’s purchases of raw materials from one supplier accounted for approximately %, another supplier accounted for approximately % for the six months ended June 30, 2020. The Company’s purchases for raw materials were approximately % and % for the three months ended June 30, 2021, and approximately % and % for the three months ended June 30, 2020. Any disruption in the operation of this supplier, Cenntro could adversely affect the Company’s operations.
Manufacturing
Cenntro Automotive Group (“Cenntro”), a related party in 2020, owns the design of the AYRO 411 model and has granted the Company an exclusive license to manufacture the AYRO 411 model for sale in North America. The Company’s business is dependent on such license, and if it fails to comply with its obligations to maintain that license, the Company’s business will be substantially harmed. Under the Manufacturing License Agreement, dated April 27, 2017, between Cenntro and the Company, the Company is granted an exclusive license to manufacture and sell AYRO 411 in the United States, and the Company is required to purchase the minimum volume of product units from Cenntro, among other obligations.
NOTE 13. RELATED PARTY TRANSACTIONS
Supply Chain Agreements
In
2017, the Company executed a supply chain contract with Cenntro, the Company’s primary supplier, a manufacturer located in the
People’s Republic of China. Prior to the Merger, Cenntro was a significant shareholder in AYRO Operating. Through the partnership,
Cenntro acquired
| F-21 |
Other
The
Company had received short-term expense advances from its founders. As of June 30, 2021 and December 31, 2020, the amounts outstanding
were $
NOTE 14. COMMITMENTS AND CONTINGENCIES
Lease Agreements
In 2019 the Company entered into a new lease agreement for office and manufacturing space. The lease commencement date was January 16, 2020. Prior to the commencement date of the new lease agreement, the Company leased other office and manufacturing space on a short-term basis. The Company determined if an arrangement is a lease at inception of the contract and whether a contract is or contains a lease by determining whether it conveys the right to control the use of identified asset for a period of time. The contact provides the right to substantially all the economic benefits from the use of the identified asset and the right to direct use of the identified asset, as such, the contract is, or contains, a lease. In connection with the adoption of ASC 842, Leases, the Company has elected to treat the lease and non-lease components as a single component.
During
March 2021, the Company subleased additional office space to support the Company’s expansion plan. The term is for 16 months with
a total lease obligation of $
Leases were classified as an operating lease at inception. An operating lease results in the recognition of a Right-of-Use (“ROU”) assets and lease liability on the balance sheet. ROU assets and operating lease liabilities are recognized based on the present value of lease payments over the lease term as of the commencement date. Because the lease does not provide an explicit or implicit rate of return, the Company determines incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments on an individual lease basis.
The
incremental borrowing rate for a lease is the rate of interest the Company would have to pay on a collateralized basis to borrow an amount
equal to the lease payments for the asset under similar term, which is
The
Company’s leases do not contain any residual value guarantees or material restrictive covenants. Leases with a lease term of 12
months or less are not recorded on the balance sheet and lease expense is recognized on a straight-line basis over the lease term. The
remaining terms for the Company’s leases as of June 30, 2021 are
During
the six months ended June 30, 2021 and 2020, cash paid for amounts included in the measurement of lease liabilities- operating cash flows
from operating lease was $
| F-22 |
The components of lease expense consist of the following:
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Operating lease expense | $ | $ | $ | $ | ||||||||||||
| Short-term lease expense | ||||||||||||||||
| Total lease cost | $ | $ | $ | $ | ||||||||||||
Balance sheet information related to leases consists of the following:
| June 30, 2021 | December 31, 2020 | |||||||
| Assets | ||||||||
| Operating lease – right-of-use asset, net | $ | $ | ||||||
| Total lease assets | $ | $ | ||||||
| Liabilities | ||||||||
| Current liabilities: | ||||||||