CONCENTRATIONS AND CREDIT RISK
|3 Months Ended|
Mar. 31, 2022
|Risks and Uncertainties [Abstract]|
|CONCENTRATIONS AND CREDIT RISK||
NOTE 12. CONCENTRATIONS AND CREDIT RISK
In March 2019, the Company entered into a five-year Master Procurement Agreement, or the MPA, with Club Car, LLC (“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. 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. Two customers accounted for approximately 99% and 1%, respectively, of the Company’s revenues for the three months ended March 31, 2022 and for 72% and 24%, respectively, for the three months ended March 31, 2021.
As of March 31, 2022 one customer accounted for approximately 99% of the Company’s gross accounts receivable. As of December 31, 2021 two customers accounted for more than 10% of the Company’s gross accounts receivable. One customer accounted for approximately 87% of the Company’s gross accounts receivable and a second customer accounted for approximately 10% of the Company’s gross accounts receivable.
The Company places orders with various suppliers. During the three months ended March 31, 2022 and 2021, multiple suppliers provided more than 10% of the Company’s raw materials purchases. During the three months ended March 31, 2022, one supplier accounted for approximately %, and another supplier accounted for % of the Company’s raw materials purchases. During the three months ended March 31, 2021 one supplier accounted for approximately %, another supplier accounted for %, and a third supplier accounted for % of the Company’s raw materials purchases. Any disruption in the operation of any of these suppliers could adversely affect the Company’s operations.
Cenntro owns the design of the AYRO 411x model and has granted the Company an exclusive license to manufacture AYRO 411x 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 the AYRO 411x in the United States, and the Company is required to purchase the minimum volume of product units from Cenntro, among other obligations.
In April 2022, the Company received a letter from Cenntro claiming that it had not met the minimum purchase requirements under the MLA and that Cenntro would therefore be terminating its exclusive license. Although AYRO’s purchases were below the numerical minimums set forth in the MLA, the Company believes it should retain its exclusive license, as the failure to meet such minimums was not due to the Company’s failure to perform under the MLA. The Company is in discussions with Cenntro concerning the continued applicability of its exclusive license. If AYRO loses this license, Cenntro could sell identical or similar products through other companies or directly to the Company’s customers, which could have a material adverse effect on its results of operations and financial condition.
The entire disclosure for any concentrations existing at the date of the financial statements that make an entity vulnerable to a reasonably possible, near-term, severe impact. This disclosure informs financial statement users about the general nature of the risk associated with the concentration, and may indicate the percentage of concentration risk as of the balance sheet date.
Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef