Quarterly report pursuant to Section 13 or 15(d)

CONCENTRATIONS AND CREDIT RISK

v3.22.2
CONCENTRATIONS AND CREDIT RISK
6 Months Ended
Jun. 30, 2022
Risks and Uncertainties [Abstract]  
CONCENTRATIONS AND CREDIT RISK

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, 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, so long as those minimums are met. Two customers accounted for approximately 89% and 10%, respectively, of the Company’s revenues for the three months ended June 30, 2022 and for 39% and 65%, respectively, for the three months ended June 30, 2021. Two customers accounted for approximately 95% and 4%, respectively, of the Company’s revenues for the six months ended June 30, 2022 and for 59% and 40%, respectively, of the Company’s revenues for the six months ended June 30, 2021.

 

In connection with the forthcoming introduction of the AYRO Z, the Company is reevaluating their channel strategy with an eye towards distributing their next-generation platform and payloads in a manner that maximizes visibility, moderates channel costs and creates value. Accordingly, the Company is evaluating their relationship with Club Car and may seek to replace Club Car with new business partners and channel partners for selling their products beginning with the AYRO Z. Any loss of Club Car as a customer, or significant reduction in purchases by Club Car, could have an adverse impact on the Company’s financial condition and operating results.

 

Accounts Receivable

 

As of June 30, 2022 one customer accounted for approximately 91% of the Company’s net accounts receivable. As of December 31, 2021 two customers accounted for more than 10% of the Company’s net accounts receivable. One customer accounted for approximately 87% of the Company’s gross account receivable and a second customer accounted for approximately 10% of the Company’s net accounts receivable.

 

Purchasing

 

The Company places orders with various suppliers. During the six months ended June 30, 2022 and 2021, two suppliers provided more than 10% of the Company’s raw materials purchases. During the six months ended June 30, 2022, one supplier accounted for approximately 61%, and another supplier accounted for 13% of the Company’s raw materials purchases. During the six months ended June 30, 2021 one supplier accounted for approximately 45%,and another supplier accounted for 12% of the Company’s raw materials purchases. The Company’s purchases of raw materials from these two suppliers were approximately 43% and 9% respectively, of its total purchases of raw materials for the three months ended June 30, 2022, and approximately 63% and 8%, respectively, of such purchases for the three months ended June 30, 2021. Any disruption in the operation of any of these suppliers could adversely affect the Company’s operations.

 

Manufacturing

 

Cenntro owns the design of the AYRO 411x model and has granted the Company an exclusive license to manufacture the AYRO 411x model for sale in North America. Under the Manufacturing License Agreement, dated April 27, 2017, between Cenntro and the Company(the “MLA”), the Company is required to purchase a minimum volume of product units from Cenntro, among other obligations, to maintain the license.

 

On May 31, 2022, the Company received a letter from Cenntro purporting to terminate all agreements and contracts between the Company and Cenntro. Although the Company does not believe Cenntro’s termination of the MLA is valid, the Company has determined to cease production of the AYRO 411x and focus its resources on the development and launch of the AYRO Z. The Company has canceled all purchase orders and future builds with Cenntro and currently intends to only order replacement parts for vehicles from Cenntro in the future. The Company is in discussions with Cenntro concerning the potential repurchase by Cenntro of unsaleable inventory due to quality concerns. AYRO expects to lose its exclusive license under the MLA, in which case Cenntro could sell 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.