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.

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 ~~12, 2021,~~10, 2022, the registrant had ~~36,388,765~~ 37,020,518shares of common stock outstanding.


	June 30,			December 31,			June 30,			December 31,
	2021			2020			2022			2021
ASSETS
Current assets:
Cash	$	87,891,072		$	36,537,097		$	40,890,769		$	69,160,466
Accounts receivable, net		1,057,534			765,850			1,922,968			969,429
Marketable securities								17,970,906			-
Inventory, net		1,728,817			1,173,254			2,053,691			3,744,037
Prepaid expenses and other current assets		1,305,899			1,608,762			1,682,761			2,276,178
Total current assets		91,983,322			40,084,963			64,521,095			76,150,110

Property and equipment, net		947,974			611,312			1,065,953			835,160
Intangible assets, net		137,334			143,845			79,210			88,322
Operating lease – right-of-use asset		1,125,368			1,098,819			894,792			1,012,884
Deposits and other assets		41,289			22,491			41,289			41,288
Total assets	$	94,235,287		$	41,961,430		$	66,602,339		$	78,127,764

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:
Accounts payable	$	2,407,248		$	767,205		$	811,860		$	647,050
Accrued expenses		1,614,102			665,068			1,064,745			2,990,513
Contract liability		-			24,000
Current portion long-term debt, net		-			7,548
Current portion lease obligation – operating lease		245,801			123,139			154,203			206,426
Total current liabilities		4,267,151			1,586,960			2,030,808			3,843,989

Long-term debt, net		-			14,060
Lease obligation - operating lease, net of current portion		933,563			1,002,794			779,363			859,543
Total liabilities		5,200,714			2,603,814			2,810,171			4,703,532

Commitments and contingencies		-			-

Stockholders’ equity:
Preferred Stock, (authorized – 20,000,000 shares)		-			-			-			-
Convertible Preferred Stock Series H, ($0.0001 par value; authorized – 8,500 shares; issued and outstanding – 8 shares as of June 30, 2021 and December 31, 2020)		-			-
Convertible Preferred Stock Series H-3, ($.0001 par value; authorized – 8,461 shares; issued and outstanding – 1,234 shares as of June 30, 2021 and December 31, 2020)		-			-
Convertible Preferred Stock Series H-6, ($.0001 par value; authorized – 50,000 shares; issued and outstanding – 50 shares as of June 30, 2021 and December 31, 2020)		-			-
Common Stock, ($0.0001 par value; authorized – 100,000,000 shares; issued and outstanding – 36,304,362 and 27,088,584 shares, as of June 30, 2021 and December 31, 2020)		3,630			2,709
Convertible Preferred Stock Series H, ($0.0001 par value; authorized – 8,500 shares; issued and outstanding – 8 shares as of June 30, 2022 and December 31, 2021, respectively)								-			-
Convertible Preferred Stock Series H-3, ($.0001 par value; authorized – 8,461 shares; issued and outstanding – 1,234 as of June 30, 2022 and December 31, 2021, respectively)								-			-
Convertible Preferred Stock Series H-6, ($.0001 par value; authorized – 50,000 shares; issued and outstanding – 50 as of June 30, 2022 and December 31, 2021, respectively)								-			-
Preferred stock, value								-			-
Common Stock, ($0.0001 par value; authorized – 100,000,000 shares; issued and outstanding – 37,020,518 and 36,866,975 as of June 30, 2022 and December 31, 2021, respectively)								3,702			3,687
Additional paid-in capital		127,483,342			64,509,724			132,575,805			131,654,776
Accumulated deficit		(38,452,399	)		(25,154,817	)		(68,787,339	)		(58,234,231	)
Total stockholders’ equity		89,034,573			39,357,616			63,792,168			73,424,232
Total liabilities and stockholders’ equity	$	94,235,287		$	41,961,430		$	66,602,339		$	78,127,764

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

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

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

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 (as discussed ~~below~~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 ~~Articles~~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 and to dealers in the United States.

Following the hiring of our new Chief Executive Officer in the third quarter of 2021, we initiated a strategic review of our product development strategy, as we focus on creating value within the electric vehicle, last-mile delivery, smart payload and enabling infrastructure markets. In connection with the strategic review, we canceled development of our planned next-generation three-wheeled high speed vehicle.

For the past several years, the Company’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 has decided to cease production of the AYRO 411x from Cenntro in September 2022 and focus its resources on the development and launch of the new 411 fleet vehicle model year 2023 refresh, the AYRO Z.

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

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”)~~Inc., a Delaware corporation previously known as AYRO, Inc. (“AYRO Operating”), 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 $0.001~~ ~~per share (“AYRO Operating Common Stock”), including shares underlying AYRO Operating’s outstanding equity awards and warrants, was converted into the right to receive~~ ~~1.3634~~ pre-split and pre-stock dividend shares (the “Exchange Ratio”) of the Company’s common stock, par value $0.0001 per share (“Company Common Stock”). Immediately following the effective time of the Merger, the Company effected a ~~1-for-10 reverse stock split~~ of the issued and outstanding Company Common Stock (the “Reverse Stock Split”), and immediately following the Reverse Stock Split, the Company issued a stock dividend of one share of Company Common Stock for each outstanding share of Common Stock to all holders of record immediately following the effective time of the Reverse Stock Split (the “Stock Dividend”). The net result of the Reverse Stock Split and the Stock Dividend was a ~~1-for-5 reverse stock split. As part of the Merger, the Company received cash of $3.06~~ ~~million in consideration for~~ ~~2,337,663~~ shares of common stock. Upon completion of the Merger and the transactions contemplated in the Merger Agreement and assuming the exercise in full of all pre-funded warrants issued pursuant thereto, (i) the former AYRO Operating equity holders (including the investors in a bridge financing and private placements that closed prior to closing of the Merger) owned approximately 79~~% of the outstanding equity of the Company; (ii) former DropCar stockholders owned approximately~~ 18~~% of the outstanding equity of the Company; and (iii) a financial advisor to DropCar and AYRO owned approximately~~ 3~~% of the outstanding equity of the Company.~~

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.

On May 28, 2020, the parties to the Asset Purchase Agreement entered into Amendment No. 1 to the Asset Purchase Agreement (the “Asset Purchase Agreement Amendment”), which Asset Purchase Agreement Amendment (i) provides for the inclusion of up to $30,000 in refunds associated with certain insurance premiums as assets being purchased by DC Partners, (ii) amends the covenant associated with the funding of the DropCar business, such that DropCar provided the DropCar business with additional funding of $175,000 at the closing of the transactions contemplated by the Asset Purchase Agreement and (iii) provides for a current employee of the Company being transferred to DC Partners to provide transition services to the Company for a period of three months after the closing of the transactions contemplated by the Asset Purchase Agreement. ~~The Asset Purchase Agreement closed on May 28, 2020, immediately following the consummation of the Merger.~~

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 $~~7,663,749~~ ~~and $13,297,582~~10,553,108 for the ~~three and~~ six months ended June 30, ~~2021, respectively,~~2022, and negative cash flows from operations of $~~7,683,111~~9,831,514 for the six months ended June 30, ~~2021.~~2022. At June 30, ~~2021,~~2022, the Company had cash balances totaling $~~87,891,072~~40,890,769 and marketable securities of $17,970,906. In addition, overall working capital ~~increased~~decreased by $~~49,218,168~~9,815,833 during the six months ended June 30, ~~2021.~~2022. Management believes that the existing cash at June 30, ~~2021~~2022 will be sufficient to fund operations for at least the next twelve months following the issuance of these unaudited condensed consolidated financial statements.

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, 2021 and into ~~2021,~~2022, the measures taken by the governments of countries affected has adversely affected the Company’s business, financial condition, and results of operations.

The Company has historically relied on foreign suppliers, including Cenntro which has been its largest supplier, for a number of raw materials, instruments and technologies that the Company purchases. The Company intends to reduce its reliance on foreign suppliers by sourcing components for the AYRO Z from vendors in the United States and in Europe, but its vendors may be reliant on foreign suppliers. The Company’s success is dependent on the ability for it and its suppliers to import or transport such products from vendors in a timely and cost-effective manner. The Company relies heavily on third parties, including ocean carriers and truckers, in that process. The global shipping industry is experiencing ocean shipping disruptions, trucking shortages, increased ocean shipping rates and increased trucking and fuel costs, and the Company cannot predict when these disruptions will end.

There is currently a shortage of shipping capacity worldwide, and as a result, receipt of imported products by the Company or its vendors may be disrupted or delayed. The shipping industry is also experiencing issues with port congestion and pandemic-related port closures and ship diversions. Labor disputes among freight carriers and at ports of entry are common, and the Company expects labor unrest and its effects on shipping products to be a challenge for it and its vendors. A port worker strike, work slow-down or other transportation disruption in domestic ports could significantly disrupt the Company’s business. The Company is currently experiencing such disruption at the port due to multiple factors brought about by the COVID-19 pandemic, ~~had an adverse~~such as supply and demand imbalance, a shortage of warehouse workers, truck drivers, transport equipment (tractors and trailers) and other causes, which have resulted in heightened congestion, bottlenecks and gridlock, leading to abnormally high transportation delays. This has materially and adversely affected the Company’s business and could continue to materially and adversely affect our business and financial results. If significant disruptions along these lines continue, this could lead to further significant disruptions in the Company’s business, delays in shipments, (including shipments of components from overseas to the Company’s vendors), and revenue and profitability shortfalls, which could adversely affect the business, prospects, financial condition and operating results.

The global shipping industry is also experiencing unprecedented increases in shipping rates from ocean carriers due to various factors, including limited availability of shipping capacity. For example, the cost of shipping products by ocean freight has recently increased to at least three times historical levels and has a corresponding impact on ~~AYRO’s sales~~profitability. The Company and its vendors may find it necessary to rely on an increasingly expensive spot market and other alternative sources to make up any shortfall in shipping needs. Additionally, if further increases in fuel prices occur, transportation costs would likely further increase. Similarly, supply chain disruptions such as those described in the preceding paragraphs may lead to an increase in transportation costs. Such cost increases have adversely affected the Company’s business and could have additional adverse effects on the Company’s business, prospects, financial condition and operating results.

The Company and its vendors 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 negatively impact the Company’s 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. Even if the Company reduces its reliance on foreign vendors, it still may be impacted by such shortages if its domestic vendors rely upon foreign sources for components. 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 ~~AYRO products~~lithium-ion cells. These risks include:

Any disruption in ~~2020~~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 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 ~~first~~maximum potential future payments we could be obligated to make. Historically, we have not been obligated to make any payments for these obligations 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~~no liabilities have ~~an adverse impact on sales and demand~~been recorded for ~~products throughout the remainder of 2021.~~these indemnities.

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”). All intercompany accounts and transactions have been eliminated in consolidation.

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,~~2022, 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,~~2021, which are included in the Company’s Annual Report on Form 10-K, filed with the SEC on March ~~31, 2021,~~23, 2022 as amended ~~on April 30, 2021.~~May 2, 2022.

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, valuation of long lived assets, sales warranties, and the measurement of stock-based compensation expenses. Actual results could differ from these estimates.

~~Certain reclassifications have been made~~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 ~~prior period financial statements to conform to the current period financial statement presentation. These reclassifications had no effect on net earnings or cash flows~~Company’s fair value hierarchy. The Company held $17,970,906 in marketable securities as ~~previously reported.~~of June 30, 2022.

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.

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 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~~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.

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 $~~59,229~~145,496 and $~~16,640~~59,229 for the three months ended June 30, 2022 and 2021 and ~~2020~~$256,045 and $109,855 ~~and $30,790~~ for the six months ended June 30, ~~2021~~2022 and ~~2020,~~2021 respectively, included in SG&A.

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 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 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.

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 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.

~~In June 2018,~~We estimate the ~~Financial Accounting Standards Board (“FASB”) issued Accounting Standard Unit (“ASU”) 2018-07, Compensation - Stock Compensation (Topic 718): Improvements~~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 ~~Nonemployee Share-Based Payment Accounting (“ASU 2018-07”). ASU 2018-07 expands~~pay a dividend on its common stock, 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 stockexpected 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 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~~ ~~1,193,391~~ ~~shares of the Company’s common stock to certain investors (“Penny Warrants”). All Penny Warrants were fully exercised by December 31, 2020.~~

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

SCHEDULE OF ANTIDILUTIVE SECURITIES EXCLUDED FROM COMPUTATION OF EARNINGS PER SHARE

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.

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~~2022 and December 31, ~~2020,~~2021, warranty reserves were recorded within accrued expenses of $~~61,592~~404,557 and $~~43,278~~240,517, respectively.

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

The Company reduced allowance for doubtful accounts by $49,138 for the six months ending June 30, 2022, due to collecting on past due accounts, and recorded $2,069 of bad debt expense for the six months ending June 30, 2022.

~~Depreciation expense for fleet inventory for~~For the three months ended June 30, 2022 and 2021, ~~and 2020~~depreciation recorded for fleet inventory was $~~23,886~~23,883 and $023,886, and for the six months ended June 30, 2022 and 2021, was $47,775and ~~2020,~~ $47,772 ~~and $~~0, respectively. ~~Management has~~The Company determined that 0 ~~reserve for inventory~~testing of obsolescence was required asfor inventory due to the quality of ~~June 30, 2021 and December 31, 2020.~~certain purchased components from Cenntro’s lithium-ion line (“NCM”). 17 vehicles tested in the second quarter of 2022 were determined to have 49 unique failures. An inspection of the remaining NCM units discovered a 100% failure rate. As a result, all inventory associated with Cenntro’s NCM line was written off to cost of goods sold for $1,317,289.

The Company impaired prepaid balances of $1,377,709 from Cenntro when purchase orders were on hold due to quality issues and refunds were not collectable.

Depreciation expense for the three months ended June 30, ~~2021~~2022 and ~~2020~~2021 was $~~74,752~~98,913 and $~~85,554~~74,752, and for the six months ended June 30, ~~2021~~2022 and 2020 was $~~145,880~~183,405 and $~~171,612~~145,880, respectively.

~~Amortization expense for the three months ended June 30, 2021 and 2020, was $30,839~~ ~~and $28,635~~ ~~and for the six months ended June 30, 2021 and 2020, was $60,023~~ ~~and $56,852, respectively. The definite lived intangible assets have no residual value at the end of their useful lives.~~

~~In April 2020, the Company issued~~ ~~553,330~~ ~~shares of common stock in connection with the issuance of the 2020 $600,000~~ ~~Bridge Note.~~

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 ~~2,200,000~~ ~~shares of common stock, par value $0.0001~~ ~~per share, at an offering price of $2.50~~ ~~per share for gross proceeds of $5,500,000~~ ~~before offering expenses of $435,000~~.

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 ~~3,157,895~~ ~~shares of common stock, par value $0.0001~~ ~~per share, at an offering price of $4.75~~ ~~per share for gross proceeds of $15,000,000~~ ~~before offering expenses of $1,249,200~~.

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 ~~1,850,000~~ ~~shares of common stock, par value $0.0001~~ ~~per share, at an offering price of $5.00~~ ~~per share for gross proceeds of $9,250,000~~ ~~before offering expenses of $740,000~~. Each purchaser also had the right to purchase, on or before October 19, 2020, additional shares of common stock (the “Additional Shares”) equal to the full amount of 75% of the common stock it purchased at the initial closing, or an aggregate of 1,387,500 shares, at an offering price of $5.00 per share. On October 16, 2020, the Company entered into an addendum to the Agreement (the “Addendum”), which extended the deadline for each purchaser to exercise the right to purchase the Additional Shares by one year, to October 19, 2021. As of December 31, 2020, investors had elected to purchase ~~420,000~~ ~~of the Additional Shares of common stock of AYRO, par value $0.0001~~ ~~per share, at an offering price of $5.00~~ ~~per share, for gross proceeds of approximately $2,100,000~~ ~~before offering expenses of $168,000~~.

~~During July 2020, the Company issued~~ ~~225,590~~ ~~shares of common stock from the conversion of~~ ~~7,833~~ ~~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 ~~1,650,164~~ ~~shares of AYRO common stock, par value $0.0001~~ ~~per share, at an offering price of $6.06~~ ~~per share, for gross proceeds of approximately $10,000,000~~ ~~before the deduction of fees and offering expenses of $847,619~~.

~~During the year ended December 31, 2020, the Company issued~~ ~~5,074,645~~ ~~shares of common stock from the exercise of~~ ~~5,092,806~~ ~~warrants and received net cash proceeds of $3,926,818~~.

~~During the year ended December 31, 2020, the Company issued~~ ~~1,030,585~~ ~~shares of common stock from the conversion of the 2019 $1,000,000~~ ~~Convertible Bridge.~~

~~During the year ended December 31, 2020, the Company issued~~ ~~2,337,663~~ ~~shares of common stock from the closing of the Merger in consideration for $3,060,740~~ ~~of cash and equity of Merger Sub.~~

~~During the year ended December 31, 2020, the Company issued~~ ~~1,573,218~~ ~~shares of common stock, par value $0.0001~~ ~~per share, for proceeds of $2,000,000~~ ~~net of offering fees and expenses of $609,010, pursuant to Stock Purchase Agreements entered into on December 19, 2019, as a component of the Merger Agreement and contingent upon closing of the Merger.~~

~~During the year ended December 31, 2020, the Company issued~~ ~~1,037,496~~ ~~shares of common stock to advisors in connection with the Merger.~~

~~In December 2020, based on its contract, the Company agreed to issue~~ ~~15,000~~ ~~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 $42,300~~ ~~was recorded for the year ended December 31, 2020.~~

~~During the year ended December 31, 2020, the Company issued~~ ~~2,007,193~~ ~~shares of the common stock from the conversion of~~ ~~7,360,985~~ ~~shares of AYRO Seed Preferred Stock.~~

~~During the year ended December 31, 2020, the Company issued~~ ~~6,817~~ ~~shares of common stock from the exercise of stock options and received cash proceeds of $16,669~~.

~~During the year ended December 31, 2020, the Company issued~~ ~~795~~ ~~shares of common stock from the conversion of~~ ~~955~~ ~~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 ~~3,333,334~~ ~~shares of common stock of AYRO, par value $0.0001~~ ~~per share, at an offering price of $6.00~~ ~~per share, for gross proceeds of $20,000,004~~ ~~before the deduction of fees and offering expenses of $1,648,608~~.

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 ~~4,400,001~~ ~~shares of common stock of AYRO, par value $0.0001~~ ~~per share, at an offering price of $9.50~~ ~~per share, for gross proceeds of $41,800,008~~ ~~before the deduction of fees and offering expenses of $3,394,054~~. Each purchaser was also granted an option to purchase, on or before February 16, 2022, additional shares of common stock equal to the full amount of 75% of the common stock it purchased at the initial closing, or an aggregate of ~~3,300,001~~ ~~shares, at an exercise price of $11.50~~ ~~per share.~~

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 (i) sell up to 5% of such stockholder’s holdings in the Company’s common stock on any trading day (with such 5% limitation to be measured as of the date of each sale) and (ii) allow for unlimited sales of the Company’s common stock for any sales made at $10.00 per share or greater. ~~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 $0.0001~~ ~~per share, at an offering price of $5.00~~ ~~per share, for gross proceeds of $1,512,500~~.

~~During February 2021, the Company issued~~ ~~13,642~~ ~~shares of common stock from the exercise of warrants and received cash proceeds of $100,000~~.

~~During the six months ended June 30, 2021, the Company issued~~ ~~469,576~~ ~~shares of common stock from the exercise of stock options and received cash proceeds of $1,224,917~~.

~~During the six months ended June 30, 2021, the Company issued~~ ~~681,725~~ ~~shares of common stock upon the vesting of restricted stock.~~

~~1,087,618~~ ~~shares of restricted common stock valued based on the stock price at the date of issuance with a weighted average price of $5.27~~ ~~per share, pursuant to the AYRO, Inc. 2020 Long-Term Incentive Plan, See Note 11. Of which~~ ~~15,115~~ ~~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~~granted 172,000 shares of restricted stock to non-executive directors at a value of $7.66per share. 43,000 shares of common stock remained unissued as of December 31, 2021; these shares were issued during the six months ended June 30, 2022.

On February 1, 2022, pursuant to the AYRO, Inc. 2020 Long-Term Incentive Plan, the Company granted 442,249 shares of restricted stock to non-executive directors at a value of $1.29 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 $~~2022, ~~1,407,012~~110,562 shares were issued and $~~2,836,541, respectively.~~vested.

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.

~~Under the terms~~As 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 $154~~ ~~and is convertible into shares of the Company’s Common Stock, equal to the stated value divided by the conversion price of $184.80~~ ~~per share (subject to adjustment~~June 30, 2022, in the event of stock splits or dividends). The Company is prohibited from effecting the conversion of the Series H Preferred Stock to the extent that, as a result of such conversion, the holder would beneficially own more than ~~9.99%, in the aggregate, of the issued and outstanding shares of the Company’s common stock calculated immediately after giving effect to the issuance of shares of common stock upon such conversion. In~~ the event of liquidation, the holders of ~~the Series H Preferred Stock are~~preferred stock were 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 Preferred Stock into common stock immediately prior to the date of such payment.~~

~~Pursuant to the Series H-3 Certificate~~As 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 $138~~ ~~and is convertible into shares of common stock, equal to the stated value divided by the conversion price of $165.60~~ ~~per share (subject to adjustment~~June 30, 2022, in the event of stock splits and dividends). The Company is prohibited from effecting the conversion of the Series H-3 Preferred Stock to the extent that, as a result of such conversion, the holder or any of its affiliates would beneficially own more than ~~9.99~~%, in the aggregate, of the issued and outstanding shares of common stock calculated immediately after giving effect to the issuance of shares of common stock upon the conversion of the Series H-3 Preferred Stock.

In the event of liquidation, the holders of ~~the~~ preferred stock were entitled to receive payments as follows:

Series ~~H-3~~H-6 Convertible 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~~2022, in the event of liquidation, the holders of preferred stock were entitled to receive payments as follows:

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 ~~50,000~~ ~~shares of Series H-6 Preferred Stock and each share has a stated value of $72.00~~ ~~(the “H-6 Stated Value”).~~ Each share of Series H-6 Preferred Stock is convertible at any time at the option of the holder thereof, into a number of shares of common stock of the Company determined by dividing the H-6 Stated Value by the initial conversion price of $~~3.60~~ ~~per share, which was then further reduced to $2.50 under the anti-dilution adjustment provision, subject to a~~ ~~9.99% blocker provision.~~ ~~The Series H-6 Preferred Stock has the same dividend rights as the common stock, except as provided for in the Series H-6 Certificate of Designation or as otherwise required by law.~~

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 $~~3.60~~. In addition, a holder (together with its affiliates) may not be permitted to vote Series H-6 Preferred Stock held by such holder to the extent that such holder would beneficially own more than 9.99% of our common stock. In the event of any liquidation or dissolution, the Series H-6 Preferred Stock ranks senior to the common stock in the distribution of assets, to the extent legally available for distribution.

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.


Number of Series H-6 Preferred Stock outstanding as of June 30, 2022		50
Multiplied by the stated value	$	72.00
Equals the gross stated value	$	3,600
Divided by the conversion price	$	2.5
Equals the convertible shares of Company Common Stock		1,440
Multiplied by the fair market value of Company Common Stock as of June 30, 2022	$	0.84
Equals the payment	$	1,714

~~Prior to the Merger, the Company issued~~ ~~461,647~~ ~~warrants (the “AYRO Seed Warrants”) with an exercise price $7.33. The AYRO Seed Warrants terminate~~ ~~five years~~ ~~from the grant date. During February 2021, AYRO Seed Warrants were exercised for proceeds of $100,000~~ ~~and the Company issued~~ ~~13,642~~ ~~shares of its Common Stock.~~ ~~As of June 30, 2021, there were~~ ~~448,005~~ ~~AYRO Seed Warrants outstanding. The Company recorded warrant expense of $~~0 ~~and $36,760~~ ~~related to the AYRO Seed Warrants for the six months ended June 30, 2021 and 2020, respectively.~~

~~Series I, J, H, H-1, H-3, H-4 and H-5 warrants transferred to AYRO common stock pursuant to the Merger.~~

~~As a result of the Merger,~~ ~~14,636~~ ~~Series I Warrants transferred to AYRO and have an exercise price of $69.00~~ ~~per share.~~ ~~If at any time (i) the volume weighted average price (“VWAP”) of the Common Stock exceeds $138.00~~ for not less than the mandatory exercise measuring period; (ii) the daily average number of shares of Common Stock traded during the mandatory exercise measuring period equals or exceeds 25,000; and (iii) no equity conditions failure has occurred as of such date, then the Company shall have the right to require the holder to exercise all or any portion of the Series I Warrants. ~~During the six months ended June 30, 2021, all~~ ~~14,636~~ ~~Series I Warrants expired.~~

~~As a result of the Merger,~~ ~~2,800~~ ~~Series H-3 Warrants transferred to AYRO and have an exercise price of $165.60~~ per share, subject to adjustments (the “Series H-3 Warrants”). Subject to certain ownership limitations, the Series H-3 Warrants are immediately exercisable from the issuance date and will be exercisable for a period of five (5~~) years from the issuance date. As of June 30, 2021, there were~~ ~~2,800~~ ~~Series H-3 Warrants outstanding.~~

~~As a result of the Merger,~~ ~~37,453~~ ~~Series H-4 Warrants transferred to AYRO and have an exercise price of $15.60. The Series H-4 Warrants contain an anti-dilution price protection, and the warrants cannot be less than $15.60~~ ~~per share. As of June 30, 2021, there were~~ ~~37,453~~ ~~Series H-4 Warrants outstanding.~~

~~As a result of the Merger,~~ ~~52,023~~ ~~Series J Warrants transferred to AYRO. The terms of the Series J Warrants are substantially identical to the terms of the Series H-4 Warrants except that (i) the exercise price is equal to $30.00~~ per share, (ii) the Series J Warrants may be exercised at all times beginning on the 6-month anniversary of the issuance date on a cash basis and also on a cashless basis, (iii) the Series J Warrants do not contain any provisions for anti-dilution adjustment and (iv) the Company has the right to require the Holders to exercise all or any portion of the Series J Warrants still unexercised for a cash exercise if the volume-weighted average price (VWAP) (as defined in the Series J Warrant) for the Company’s common stock equals or exceeds $~~45.00~~ ~~for not less than ten consecutive trading days.~~

If at any time (i) the VWAP of the Common Stock exceeds $9.00 for not less than the mandatory exercise measuring period; (ii) the daily average number of shares of Common Stock traded during the mandatory exercise measuring period equals or exceeds 25,000; and (iii) no equity conditions failure has occurred as of such date, then the Company shall have the right to require the holder to exercise all or any portion of the Series J Warrants still unexercised for a cash exercise. ~~As of June 30, 2021, there were~~ ~~52,023~~ ~~Series J Warrants outstanding.~~

~~As a result of the Merger,~~ ~~296,389~~ ~~Series H-5 Warrants were transferred to AYRO and have an exercise price of $2.50~~ ~~per share. Subject to certain ownership limitations, the H-5 Warrants became exercisable beginning six months from the issuance date and will be exercisable for a period of~~ ~~five years~~ ~~from the initial issuance date.~~

The H-5 Warrants 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 exercise price (subject to a floor of $0.792 per share). An anti-dilution adjustment was triggered resulting in an adjusted exercise price per share from $3.96 to $2.50, resulting in an issuance of an additional ~~173,091~~ ~~warrants that are exercisable at $2.50 per share.~~ ~~As of June 30, 2021, there were~~ ~~348,476~~ ~~Series H-5 Warrants outstanding.~~

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 $~~432,727~~. Cash received upon exercise in excess of par value is accounted for through additional paid in capital. The Company valued the deemed dividend as the difference between: (a) the modified fair value of the Series H-5 Warrants in the amount of $~~967,143~~ ~~and (b) the fair value of the original award prior to the modification of $534,416~~.

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 ~~89.96%, (c) dividend yield of~~ 0~~%, (d) risk-free interest rate of~~ ~~0.24%, 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~~ ~~Warrants expire through the years 2022-2024~~.

~~On June 19, 2020, the Company agreed to issue finder warrants (the “June Finder Warrants”) to purchase~~ ~~27,273~~ ~~shares of the Company’s common stock at an exercise price of $2.75~~ ~~per share to a finder or its designees, and the Company agreed to issue warrants to Palladium (the “June Placement Agent Warrants”) to purchase~~ ~~126,000~~ ~~shares of the Company’s common stock at an exercise price of $2.875~~ ~~per share. The June Finder Warrants and June Placement Agent Warrants terminate after a period of~~ 5 ~~years on June 19, 2020. As of December 31, 2020, 126,000 of the June Placement Agent Warrants had been exercised. As of June 30, 2021, the 27,273 June Finder Warrants were outstanding.~~

~~On July 8, 2020, the Company agreed to issue finder warrants (the “July 8 Finder Warrants”) to purchase~~ ~~71,770~~ ~~shares of the Company’s common stock at an exercise price of $5.225~~ per share to a finder or its designees, and the Company agreed to issue warrants to Palladium (the “July 8 Placement Agent Warrants”) to purchase 147,368 shares of the Company’s common stock at an exercise price of $~~5.4625~~ ~~per share.~~

~~The July 8 Finder Warrants and July 8 Placement Agent Warrants terminate after a period of~~ 5 ~~years on July 8, 2020. As of June 30, 2021, there were~~ ~~71,770~~ ~~July 8 Finder Warrants and~~ ~~147,368~~ ~~July 8 Placement Agent Warrants were outstanding.~~

~~On July 22, 2020, the Company agreed to issue warrants to Palladium (the “July 22 Placement Agent Warrants”) to purchase~~ ~~129,500~~ ~~shares of the Company’s common stock at an exercise price of $5.750~~ ~~per share. The July 22 Placement Agent Warrants terminate after a period of~~ 5 ~~years on July 22, 2020. As of June~~ ~~30, 2021, there were~~ ~~129,500~~ ~~July 22 Placement Agent Warrants outstanding.~~

~~On September 25, 2020, the Company issued a warrant (the “September Warrant”) to purchase~~ ~~31,348~~ ~~shares of the Company’s common stock at an exercise price of $3.19~~ ~~per share to a vendor for facilitating a manufacturing agreement.~~ ~~The September Warrant is immediately exercisable and expires on September 25, 2025.~~ ~~The September Warrant was classified as equity and the estimated fair value of $2.13~~ ~~per share was computed as of September 25, 2020, using the Black-Scholes model. The Company recorded $66,845~~ ~~as stock-based compensation expense during the fourth quarter in 2020 for the total fair value of the September Warrant. As of June~~ ~~30, 2021, there were~~ ~~31,348~~ ~~September Warrants outstanding.~~

~~The following assumptions were used to determine the fair value of the September Warrants:~~

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 $~~9,999,997. Each purchaser additionally purchased and received Series A Warrants and Series B Warrants equal to 75% and 50% of the purchased shares, for a total of~~ ~~1,237,624~~ ~~Series A Warrants and~~ ~~825,084~~ ~~Series B Warrants. The Series A Warrants were immediately exercisable, in whole or in part at a strike price of $8.09~~ ~~and expired on May 24, 2021. The Series B Warrants are immediately exercisable, in whole or in part, at a strike price of $8.90, and terminate five years from the date issuance on November 24, 2025. As of June~~ ~~30, 2021, there were no Series A Warrants and 825,084 Series B Warrants outstanding~~.

~~On November 22, 2020, the Company~~ ~~agreed to issue finder warrants (the “November Finder Warrants”) to purchase~~ ~~56,256~~ ~~shares of the Company’s common stock at an exercise price of $6.6660~~ ~~per share to a finder or its designees, and the Company agreed to issue warrants to Palladium (the “November Placement Agent Warrants”) to purchase~~ ~~57,756~~ ~~shares of the Company’s common stock at an exercise price of $6.9690~~ ~~per share.~~

~~The November Finder Warrants and November Placement Agent Warrants terminate after a period of 5 years on November 22, 2025.~~ ~~As of June~~ ~~30, 2021, there were~~ ~~56,256~~ ~~November Finder Warrants and~~ ~~57,756~~ ~~November Placement Agent Warrants were outstanding.~~

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 ~~3,333,334~~ ~~shares of common stock of AYRO, par value $0.0001~~ ~~per share, at an offering price of $6.00~~ ~~per share, for gross proceeds of approximately $20.0~~ ~~million before the deduction of fees and offering expenses.~~

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 ~~3,333,334~~ ~~shares at an exercise price of $6.93~~ ~~per share.~~

~~On January 25, 2021, the Company agreed to issue warrants to Palladium, the placement agent for the January 2021 offering to purchase~~ ~~233,334~~ ~~shares of the Company’s common stock at an exercise price of $6.93~~ ~~per share. The warrants are exercisable six months following issuance and terminate on July 23, 2023.~~

~~On February 11, 2021, the Company agreed to issue warrants to Spartan Capital Securities, LLC and its affiliates (the “February Finder Warrants”) to purchase~~ ~~15,574~~ ~~shares of the Company’s common stock at an exercise price of $10.925 per share and to purchase~~ ~~35,885~~ ~~shares of the Company’s common stock at an exercise price of $10.45~~ ~~per share to a finder or its designees. In addition, the Company agreed to issue warrants to Palladium (the “February Placement Agent Warrants”) to purchase~~ ~~255,584~~ ~~shares of the Company’s common stock at an exercise price of $10.925~~ ~~per share. The February Finder Warrants and February Placement Agent Warrants terminate after a period of~~ 5 ~~years on February 26, 2026. As of June 30, 2021, there were~~ ~~51,459~~ ~~February Finder Warrants and~~ ~~255,584~~ ~~February Placement Agent Warrants were outstanding.~~

~~A summary of the Company’s warrants to purchase common stock activity is as follows:~~

The Company’s equity incentive plan created in 2014 (the “2014 Plan”) was amended in 2018 to increase the number of shares of Company common stock available for issuance. Pursuant to the 2014 Plan, 141,326 shares of common stock were reserved for issuance. As of June 30, 2022, there were no shares available for grant under the 2014 Plan.

The Company has reserved a total of 477,983 shares of its common stock pursuant to the AYRO, Inc. 2017 Long-Term Incentive Plan. The Company had 128,606 shares of common stock outstanding under the plan at June 30, 2022. At June 30, 2022, no shares remained available for grant under future awards under the 2017 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 4,089,650 shares of its common stock pursuant to the AYRO, Inc. 2020 Long-Term Incentive Plan (the “Plan”), including shares of restricted stock that have been issued. The Company ~~has~~had awards concerning an aggregate of ~~1,874,037~~ ~~stock options, restricted stock and warrants remaining under this plan as of June 30, 2021.~~

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.

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”), ~~141,326~~1,570,232 shares of common stock ~~were reserved for issuance~~outstanding under the Plan at June 30, 2022, including stock options and ~~there are options to purchase~~restricted stock. At June 30, 2022, ~~61,440~~1,243,715 shares ~~outstanding as of June 30, 2021. As of June 30, 2021, there were~~ 0 ~~shares~~remained available for grant under future awards under the ~~2014~~ Plan.

Stock-based compensation, including restricted stock awards, stock options and warrants is included in the unaudited condensed consolidated statement of operations as follows:

Of the outstanding options, ~~575,600~~607,633 were vested and exercisable as of June 30, ~~2021.~~2022. At June 30, ~~2021~~2022 the aggregate intrinsic value of stock options vested and exercisable was $~~1,534,567~~0.

The Company recognized $$(~~231,059~~6,298) and $~~136,244~~231,059 of stock option expense for the three months ended June 30, 2022 and 2021, and ~~June 30, 2020,~~$26,078 and $500,953 ~~and $270,647~~ for the six months ended June 30, ~~2021~~2022 and June 30, ~~2020,~~2021, respectively. Total compensation cost related to non-vested stock option awards not yet recognized as of June 30, ~~2021~~2022 was $~~1,472,752~~210,538 and will be recognized on a straight-line basis through the end of the vesting periods through ~~October~~December 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.

SCHEDULE OF ~~STOCK-BASED PAYMENT AWARD,~~FUTURE STOCK ~~OPTIONS, VALUATION ASSUMPTIONS~~OPTION COMPENSATION EXPENSE

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.

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.

~~In September 2020,~~On February 1, 2022, pursuant to the Plan, the Company issued ~~436,368~~442,248 shares of restricted stock to non-executive directors at a value of ~~which~~ $~~15,115~~1.29 ~~immediately vested and the remainder to~~ ~~vest in December 2020, which was subsequently modified to vest in full in May 2021.~~ ~~During May 2021, of the remaining outstanding restricted stock~~ ~~378,641~~ ~~vested and~~ ~~42,612~~ ~~were forfeited.~~per share. The Company recognized compensation expense related to all restricted stock during the three months ended June 30, 2022 and 2021 of $309,850 and $198,763 and for the six months ended June 30, 2022 and 2021 of $~~198,763~~565,585 and $699,528~~, respectively.~~

~~In December 2020, based on objectives achieved, the Company issued~~ ~~651,250~~ ~~shares of restricted stock to Rodney C. Keller, Jr. (“the “Keller Restricted Stock”) that vest according to~~ ~~the following vesting schedule: one-third will vest on May 28, 2021, one-third will vest on December 4, 2021 and one-third will vest on December 4, 2022.~~ ~~Compensation expense recognized for the Keller Restricted Stock for the three and six months ended June 30, 2021 was $732,472~~ ~~and $1,478,247~~, respectively. Total compensation cost related to non-vested restricted stock not yet recognized as of June 30, ~~2021~~2022 was $~~2,648,371~~941,803 ~~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~~ ~~172,000~~ ~~shares of restricted stock to non-executive directors at a value of $7.66~~ ~~per share.~~ ~~The shares vest 50% at June 30, 2021, 25% at September 30, 2021 and 25% at December 31, 2021.~~ ~~The Company recognized compensation expense during the three and six months ended June 30, 2021 of $475,771~~ ~~and $658,760. Total compensation cost related to non-vested restricted stock not yet recognized as of June 30, 2021 was $658,760~~ ~~and will be recognized on a straight-line basis through the end of the vesting periods through December 31, 2021.~~

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 $~~0 ~~and $14,704~~ ~~of warrant expense related to consulting services for the three months ended June 30, 2021 and 2020, and $~~0 ~~and $36,760~~ ~~for the six months ended June 30, 2021 and 2020, respectively.~~

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. ~~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~~notice, so long as those minimums are met. Two customers accounted for ~~the Company’s revenues, one for~~approximately 5989% and 81~~% and the second for~~ 40~~% and~~ 1710%, respectively, ~~and one for~~ 39~~% and~~ 76~~% and~~of the ~~second for~~ 65~~% and~~ 25%Company’s revenues for the three months ended June 30, ~~2021~~2022 and ~~2020, respectively.~~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.

As of June 30, ~~2021 and~~2022 one customer accounted for approximately 91% of the Company’s net accounts receivable. As of December 31, ~~2020,~~2021 two customers accounted for more than ~~10%~~10% of the Company’s net accounts receivable. One customer accounted for approximately 4587% of the Company’s gross account receivable and 74~~% as of June 30, 2021 and December 31, 2020, respectively. A~~a second customer accounted for approximately 4410% ~~and~~ 11~~% as~~ of ~~June 30, 2021 and December 31, 2020, respectively.~~the Company’s net accounts receivable.

The Company places orders with various suppliers. During the six months ended June 30, ~~2021~~2022 and ~~2020,~~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 ~~Cenntro,~~ accounted for approximately 45%,and another supplier accounted for ~~approximately~~ 12%. of the Company’s raw materials purchases. The Company’s purchases of raw materials from ~~one supplier accounted for~~these two suppliers were approximately 5743%~~, another supplier accounted for approximately~~ and 259% respectively, of its total purchases of raw materials for the ~~six~~three months ended June 30, ~~2020. The Company’s purchases for raw materials were~~2022, and approximately 63% and 8%, respectively, of such purchases for the three months ended June 30, ~~2021, and approximately~~ 28~~% and~~ 12~~% for the three months ended June 30, 2020.~~2021. Any disruption in the operation of ~~this supplier, Cenntro~~any of these suppliers could adversely affect the Company’s operations.

Cenntro ~~Automotive Group (“Cenntro”), a related party in 2020,~~ owns the design of the AYRO ~~411~~411x model and has granted the Company an exclusive license to manufacture the AYRO ~~411~~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,~~ Company(the ~~Company is granted an exclusive license to manufacture and sell AYRO 411 in the United States, and~~“MLA”), the Company is required to purchase ~~the~~a minimum volume of product units from Cenntro, among other ~~obligations.~~obligations, to maintain the license.

~~In 2017,~~On May 31, 2022, the Company ~~executed~~received a ~~supply chain contract with~~letter from Cenntro purporting to terminate all agreements and contracts between the ~~Company’s primary supplier, a manufacturer located in~~ Company and Cenntro. Although the ~~People’s Republic~~Company does not believe Cenntro’s termination of ~~China. Prior~~the MLA is valid, the Company has determined to ~~the Merger, Cenntro was a significant shareholder in AYRO Operating. Through the partnership, Cenntro acquired~~ 19~~% of AYRO Operating’s common stock. Cenntro owns the design~~cease production of the AYRO ~~411 Fleet~~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 ~~and has granted~~from Cenntro in the future. The Company anis 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 ~~purchase~~ the ~~AYRO 411 Fleet vehicles for sale in North America. Currently, the Company purchases~~ ~~100~~%Company’s customers, which could have a material adverse effect on its results of ~~its vehicle chassis, cabs~~operations and wheels through this supply chain relationship with Cenntro. The Company must sell a minimum number of units in order to maintain its exclusive supply chain contract upon availability of the next-generation AYRO 411, the 411x. As of June 30, 2021 and December 31, 2020, the amounts outstanding to Cenntro as a component of accounts payable were $~~16,635~~ ~~and $44,594, respectively. See Note 12 for concentration amounts.~~financial condition.

Under a memo of understanding signed between the Company and Cenntro on March 22, 2020, the Company agreed to purchase 300 units within the following twelve months of signing the memo of understanding, and 500 and 800 in each of the following respective twelve-month periods. ~~On July 9, 2020, in exchange for certain percentage discounts for raw materials, the Company made a $1.2~~ ~~million prepayment for inventory. During the six months ended June 30, 2021, the Company made an additional deposit of $100,000, as prepayment for additional inventory for 2021. As of June 30, 2021 and December 31, 2020, the prepayment deposits were $711,634~~ ~~and $976,512, respectively.~~

~~The Company had received short-term expense advances from its founders. As of June 30, 2021 and December 31, 2020, the amounts outstanding were $15,000~~ ~~for each year and recorded as a component of accounts payable on the accompanying unaudited condensed consolidated balance sheets.~~

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 $131,408. 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.~~

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 ~~10.41%. Lease expense for the lease is recognized on a straight-line basis over the lease term.~~

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 ~~5.75~~ ~~and~~ ~~1.00~~ ~~years, respectively. The Company currently has no finance leases.~~

~~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 $67,009~~ ~~and $30,286, respectively.~~

~~Future minimum lease payment under non-cancellable lease as of June 30, 2021 are as follows:~~

On September 25, 2020, AYRO entered into a Master Manufacturing Services Agreement (the “Karma Agreement”) with Karma Automotive, LLC ~~(the “Karma Agreement”~~(“Karma”). The ~~term of the contract is for~~ 12 ~~months.~~Karma Agreement expires in September 2022. Pursuant to the agreement Karma ~~will~~agreed to provide certain manufacturing services, starting in 2021, under an attached statement of work including final assembly, raw material storage and logistical support of our vehicles in return for compensation of $1,160,800.

The Company paid Karma an amount of $440,000for the first production level builds and $80,000for setup costs. In addition, the Company issued warrants to an advisor to the transaction with a fair value of $66,845due at signing of the contract, ~~and~~which amount was expensed in the prior year. The payment was recorded as prepaid expense as of December 31, 2020. ~~On February 24, 2021, the Karma Agreement was amended to allow Karma to assemble a certain number of units of the AYRO 411 vehicle.~~ For the ~~three and six months~~year ended ~~June 30,~~December 31, 2021, the Company recorded expense of $~~23,140~~641,140 ~~and $30,260~~related to the Karma Agreement for the assembly of the AYRO 411 ~~vehicle as discussed above.~~and 411x vehicles (the “AYRO 411 Fleet”), of which $468,480 was recorded to reduce the total remaining prepaid expense to match the expected number of 411x vehicles to be built in 2022. This amount was recorded against cost of goods for direct labor as part of the first production level ~~builds. In addition,~~builds, and $73,333 was recorded for pre-production costs. $277,680 prepaid balance remained as of June 30, 2022. During the ~~setup costs balance of~~three and six months ended June 30, 2022, $~~73,333~~72,980 and $161,980 was ~~fully amortized on~~expensed, respectively. During the three and six months ended June 30, 2021, $23,140 was expensed.

The Company and Karma are working to wind down production of the AYRO 411x platform as ~~full~~the Company transitions to production ~~started during~~of the ~~second quarter of 2021.~~AYRO Z, and the Company intends to retire the 411x assembly line in late September 2022.

The Company is subject to various legal proceedings and claims, either asserted or unasserted, which arise in the ordinary course of business, that it believes are incidental to the operation of its business. While the outcome of these claims cannot be predicted with certainty, management does not believe that the outcome of any of these legal matters will have a material adverse effect on its results of operations, financial positions or cash flows.

In 2017, the Company ~~entered into an agreement~~executed a supply chain contract with ~~Arcimoto, Inc.~~Cenntro, which has historically been the Company’s primary supplier. Prior to ~~settle certain patent infringement claims (the “Arcimoto Settlement”) for~~the Merger, Cenntro was a ~~de minimis amount, pursuant to which~~significant shareholder in AYRO Operating. Cenntro owns the ~~Company agreed to cease the production, importation and sale~~design of the AYRO ~~311, among other things. Accordingly,~~411 Fleet vehicles and has granted the Company ~~would not be contractually permitted~~an exclusive license to ~~resume production~~purchase the AYRO 411 Fleet vehicles for sale in North America. The Company purchased 100% of its vehicle chassis, cabs and wheels for AYRO 411 Fleet Vehicles through this supply chain relationship with Cenntro. The Company must sell a minimum number of units in order to maintain its exclusive supply chain contract. See Note 12 for concentration amounts.

As of December 31, 2021 the net balance between prepaid expenses and accrued expenses with Cenntro was a prepaid balance of $602,016. As of June 30, 2022 the balance was 0. Impairments of prepaid expenses led to a write-down, netted with the balance in accrued expenses. The remainder of the ~~AYRO 311.~~balance was expensed through cost of goods sold for $621,097. Additionally, all inventory associated with Cenntro’s NCM line was written off to cost of goods sold for $1,317,289.

The Company has canceled all purchase orders and future builds with Cenntro and currently intends to only order replacement parts from Cenntro in the future. The Company is ~~continuing~~in discussions with Cenntro to determine the ~~development~~amount of ~~an all-new, three-wheeled electric vehicle, which the Company has intended~~prepaid expenses to ~~replace~~be returned to AYRO ~~311~~ as ~~its three-wheeled electric vehicle product offering.~~a result of Cenntro’s delivery of unsaleable inventory.

As of January 1, 2019, DropCar ~~Operating, Inc. (“DropCar”)~~ had accrued approximately $232,000 for the settlement of multiple employment disputes. As of June 30, 2022 and December 31, 2021, approximately $~~5,603~~3,500 ~~remained~~remained accrued as accounts payable and accrued expenses for the settlement of the final remaining employment dispute.

On March 23, 2018, DropCar was made aware of an audit being conducted by the New York State Department of Labor (“DOL”) regarding a claim filed by an employee. The DOL is investigating whether DropCar properly paid overtime for which DropCar has raised several defenses. In addition, the DOL is conducting its audit to determine whether the Company owes spread of hours pay (an hour’s pay for each day an employee worked or was scheduled for a period over ten hours in a day). If the DOL determines that monies are owed, the DOL will seek a backpay order, which management believes will not, either individually or in the aggregate, have a material adverse effect on the Company’s business, consolidated financial position, results of operations or cash flows. Management believes the case has no merit.

DropCar was a defendant in a class action lawsuit which resulted in a judgement entered into whereby the Company is required to pay legal fees in the amount of $45,000 to the plaintiff’s counsel. As of June 30, ~~2021~~2022 and December ~~31,2020,~~31, 2021, the balance due remains $45,000~~. This~~, recorded as a component of accounts payable on the accompanying consolidated balance sheet. In addition, this amount was included in the $186,000 of prefunded liabilities assumed by AYRO in the ~~Merger~~Merger.

DropCar was audited by the New York State Department of Taxation and Finance (“DOTF”) for its sales tax paid over the period of 2017 – ~~See Note 1.~~2020. The DOTF believes DropCar owes additional sales tax plus interest. Management is investigating the details this audit. As of December 31, 2021 the Company had accrued the balance and as of June 30, 2022 paid the balance of $476,280 for such additional sales tax and interest.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following management’s discussion and analysis should be read in conjunction with our historical financial statements and the related notes thereto. This management’s discussion and analysis contains forward-looking statements, such as statements of our plans, objectives, expectations and intentions. Any statements that are not statements of historical fact are forward-looking statements. When used, the words “believe,” “plan,” “intend,” “anticipate,” “target,” “estimate,” “expect” and the like, and/or future tense or conditional constructions (“will,” “may,” “could,” “should,” etc.), or similar expressions, identify certain of these forward-looking statements. These forward-looking statements are subject to risks and uncertainties, including those under “Risk Factors” in our filings with the Securities and Exchange Commission (“SEC”) that could cause actual results or events to differ materially from those expressed or implied by the forward-looking statements. Our actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of several factors. See “Cautionary Note Regarding Forward-Looking Statements.”

References in this management’s discussion and analysis to “we,” “us,” “our,” “the Company,” “our ~~Company”~~Company,” or “AYRO” refer to AYRO, Inc. and its subsidiaries.

This ~~quarterly report~~Quarterly Report on Form 10-Q (this “Form 10-Q”) contains forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements may be identified by the use of forward-looking terms such as “anticipates,” “assumes,” “believes,” “can,” “could,” “estimates,” “expects,” “forecasts,” “guides,” “intends,” “is confident that,” “may,” “plans,” “seeks,” “projects,” “targets,” “would” and “will” or the negative of such terms or other variations on such terms or comparable terminology. Such forward-looking statements include, but are not limited to, future financial and operating results, the company’s plans, objectives, expectations and intentions, statements concerning the strategic review of our product development strategy, the development and launch of the AYRO Z and other statements that are not historical facts. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition, and results of operations. These forward-looking statements speak only as of the date of this Form 10-Q and are subject to a number of risks, uncertainties, and assumptions that could cause actual results to differ materially from our historical experience and our present expectations, or projections described under the sections in this Form 10-Q and our other reports filed with the SEC titled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

A summary of the principal risk factors that make investing in our securities risky and might cause our actual results to differ materially from those projected in these forward-looking statements is set forth below. If any of the following risks occur, our business, financial condition, results of operations, cash flows, cash available for distribution, ability to service our debt obligations and prospects could be materially and adversely affected.

For a more detailed discussion of these and other factors that may affect our business and that could cause the actual results to differ materially from those projected in these forward-looking statements, see the risk factors and uncertainties set forth in Part II, Item 1A of this Form 10-Q and in Part I, Item 1A of our Annual Report on Form 10-K as filed on March ~~31, 2021, as~~23, 2022 and amended on ~~April 30, 2021.~~May 2, 2022 (“Form 10-K”). Any one or more of these uncertainties, risks and other influences could materially affect our results of operations and whether forward-looking statements made by us ultimately prove to be accurate. We undertake no obligation to publicly update or revise any forward-looking statements, whether from new information, future events or otherwise, except as required by law.

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, Inc., a Delaware corporation previously known as AYRO, Inc. (“AYRO Operating”), 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 $0.001 per share (the “AYRO Operating Common Stock”), including shares underlying AYRO Operating’s outstanding equity awards and warrants, was converted into the right to receive 1.3634 pre-split and pre-stock dividend shares (the “Exchange Ratio”) of the Company’s common stock, par value $0.0001 per share (the “Company Common Stock”). Upon completion of the Merger and the transactions contemplated in the Merger Agreement and assuming the exercise in full of all pre-funded warrants issued pursuant thereto, (i) the former AYRO Operating equity holders (including the investors in a bridge financing and private placements that closed prior to closing of the Merger) owned approximately 79% of the outstanding equity of the Company; (ii) former DropCar stockholders owned approximately 18% of the outstanding equity of the Company; and (iii) a financial advisor to DropCar and AYRO owned approximately 3% of the outstanding equity of the Company.

The Merger was treated as a reverse recapitalization effected by a share exchange for financial accounting and reporting purposes since 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 is treated as the accounting acquirer as its stockholders control 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.

On May 28, 2020, immediately following the effective time of the Merger, we effected a reverse stock split of the issued and outstanding shares of our common stock, at a ratio of one share for ten shares (the “Reverse Stock Split”). Immediately following the Reverse Stock Split, we issued a stock dividend of one share of the Company’s common stock for each outstanding share of common stock to all holders of record immediately following the effective time of the Reverse Stock Split (the “Stock Dividend”).

The net result of the Reverse Stock Split and the Stock Dividend was a 1-for-5 reverse stock split. We made proportionate adjustments to the per share exercise price and/or the number of shares issuable upon the exercise or vesting of all stock options, restricted stock units (if any) and warrants outstanding as of the effective times of the Reverse Stock Split and the Stock Dividend in accordance with the terms of each security based on the split or dividend ratio. Also, we reduced the number of shares reserved for issuance under our equity compensation plans proportionately based on the split and dividend ratios. Except for adjustments that resulted from the rounding up of fractional shares to the next whole share, the Reverse Stock Split and Stock Dividend affected all stockholders uniformly and did not change any stockholder’s percentage ownership interest in the Company. The Reverse Stock Split did not alter the par value of Company Common Stock, $0.0001 per share, or modify any voting rights or other terms of the common stock. Except as otherwise set forth herein, share and related option or warrant information presented in this Management’s Discussion and Analysis of Financial Condition and Results of Operations have been adjusted to reflect the reduced number of shares outstanding, the increase in share price which resulted from these actions or otherwise to give effect to the Reverse Stock Split and the Stock Dividend.

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. On May 28, 2020, the parties to the Asset Purchase Agreement entered into Amendment No. 1 to the Asset Purchase Agreement (the “Asset Purchase Agreement Amendment��), which Asset Purchase Agreement Amendment (i) provides for the inclusion of up to $30,000 in refunds associated with certain insurance premiums as assets being purchased by DC Partners, (ii) amends the covenant associated with the funding of the DropCar business, such that DropCar provided the DropCar business with additional funding of $175,000 at the closing of the transactions contemplated by the Asset Purchase Agreement and (iii) provides for a current employee of the Company being transferred to DC Partners to provide transition services to the Company for a period of three months after the closing of the transactions contemplated by the Asset Purchase Agreement. The Asset Purchase Agreement closed on May 28, 2020, immediately following the consummation of the Merger.

~~Prior to the Merger, DropCar provided consumer and enterprise solutions to urban automobile-related logistical challenges. Following the Merger, we~~We design and manufacture compact, sustainable electric vehicles for closed campus mobility, low speed urban and community transport, local on-demand and last mile delivery and government use. Our four-wheeled purpose-built electric vehicles are geared toward commercial customers, including universities, business and medical campuses, last mile delivery services and food service providers. We are currently ~~designing~~updating our next model year (model year 2023) vehicle lineup in support of the aforementioned markets.

For the past several years, our 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, we have decided to ~~support~~cease production of the ~~above-listed markets.~~AYRO 411x from Cenntro in September 2022 and focus our resources on the development and launch of the new 411 fleet vehicle model year 2023 refresh, the AYRO Z.

In December 2021, we began design and development on the AYRO Z, including updates on our supply chain evolution, the offshoring/onshoring mix, our manufacturing strategy, and our annual model year refresh program. We expect to unveil the first AYRO Z prototype in the fourth quarter of 2022.

~~AYRO~~Our vehicles provide the end user an environmentally friendly alternative to internal combustion engine vehicles (cars powered by gasoline or diesel oil), for light duty uses, including low-speed logistics, maintenance ~~and~~services, cargo services, atand personal/group transport in a quiet, zero emissions vehicle with a lower total ~~cost.~~cost of ownership. The majority of our sales are currently comprised of sales of our four-wheeled vehicle to Club Car, ~~a division of Ingersoll Rand, Inc.~~LLC (“Club Car”), through a strategic arrangement entered into in early 2019. ~~We plan to continue growing our business through our experienced management team by leveraging our supply chain, allowing us to scale production without a large capital investment.~~

In 2017, AYRO Operating partnered with Cenntro ~~Automotive Group, Ltd. (“Cenntro”), which operates a large electric vehicle factory in the automotive district in Hangzhou, China,~~ in a supply chain agreement to provide sub-assembly manufacturing services. ~~Through the partnership,~~ Cenntro ~~initially acquired 19% in 2017 of AYRO Operating’s common stock. Cenntro beneficially owned approximately 4.38% of our common stock as of December 31, 2020.Cenntro~~ owns the design of the AYRO Club Car 411 ~~Fleet~~ and 411x (“AYRO 411 Fleet”)vehicles and has granted us an exclusive license to purchase the AYRO 411 Fleet vehicles for sale in North America.

Under our Manufacturing License Agreement with Cenntro (the “MLA”), in order for us to maintain our exclusive territorial rights pursuant to the MLA, ~~for the first three years after the effective date of March 22, 2020,~~ we must meet ~~the following~~certain minimum purchase requirements, which we believe we satisfied for the initial period: (i) a minimum of 300 units sold by the first anniversary of the effective date of the MLA; (ii) a minimum of 800 units sold by the second anniversary of the effective date of the MLA; and (iii) a minimum of 1,300 units sold by the third anniversary of the effective date of the MLA.requirements.

Cenntro will determine the minimum sale requirements for the years thereafter. Should any event of default occur, the other party may terminate the MLA by providing written notice to the defaulting party, who will have 90 days from the effective date of the notice to cure the default. Unless waived by the party providing notice, a failure to cure the default(s) within the 90-day time frame will result in the automatic termination of the MLA. Events of default under the MLA include a failure to make a required payment when due, the insolvency or bankruptcy of either party, the subjection of either party’s property to any levy, seizure, general assignment for the benefit of creditors, and a failure to make available or deliver the products in the time and manner provided for in the MLA. We are dependent on the MLA, and in the event of its termination our manufacturing operations and customer deliveries would be materially impacted.

We have imported semi-knocked-down vehicle kits from Cenntro for the AYRO 411x models comprising our model year 2022 lineup. The vehicle kits are received through shipping containers at the assembly facility of Karma Automotive LLC (“Karma”), our manufacturing partner, in southern California, as well as at our customization, service and integration facility in Round Rock, Texas. The vehicles are then assembled with tailored customization requirements per order.

On May 31, 2022, we received a letter from Cenntro purporting to terminate all agreements and contracts between the Company and Cenntro. Although we do not believe Cenntro’s termination of the MLA is valid, we have determined to cease production of the AYRO 411x and focus our resources on the development and launch of the AYRO Z. We have canceled all purchase orders and future builds with Cenntro and currently intend to only order replacement parts for vehicles from Cenntro in the future. We are in discussions with Cenntro concerning the potential repurchase by Cenntro of unsaleable inventory. We expect to lose our exclusive license under the MLA, in which case Cenntro could sell identical or similar products through other companies or directly to our customers, which could have a material adverse effect on our results of operations and financial condition.

We intend for the new AYRO Z to utilize assemblies and products that will largely eliminate our dependency on Chinese imports and optimize the supply chain to North American and European sources. Final assembly of the AYRO Z is expected to occur in our Round Rock, Texas facilities, which we are currently building out in anticipation of AYRO Z production.

In March 2019, ~~AYRO Operating~~we entered into a five-year Master Procurement ~~Agreement(the~~Agreement (the “MPA”), with Club Car for the sale of our four-wheeled ~~vehicle.~~vehicles. The MPA grants Club Car the exclusive right to sell ~~AYRO’s~~our four-wheeled ~~vehicle~~vehicles 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 or 2021, we ~~currently do~~have not ~~intend to sell~~sold our ~~four-wheeled~~model year 2022 411x vehicles commercially other than ~~exclusively~~ through Club Car. Under the terms of the MPA, we receive orders from Club Car dealers for vehicles of specific configurations, and ~~AYRO invoices~~we invoice Club Car once the vehicle has shipped. 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.~~notice, so long as those minimums are met. Pursuant to the MPA, we granted Club Car a right of first refusal for sales of 51% or more of AYRO Operating’s assets or equity interests, which right of first refusal is exercisable for a period of 45 days following ~~AYRO Operating’s~~ delivery of an acquisition notice to Club Car. We also agreed to collaborate with Club Car on new products similar to our four-wheeled vehicle and improvements to existing products and granted Club Car a right of first refusal to purchase similar commercial utility vehicles wewhich AYRO Operating may develop during the term of the MPA. ~~We are currently engaged in discussions with Club Car to develop additional products to be sold by Club Car in Europe and Asia but there can be no assurance that these discussions will be successful.~~ For the three and six months ended June 30, ~~2021,~~2022, revenues from Club Car constituted approximately ~~39%~~89% and ~~59%~~95% respectively of our ~~revenue, respectively.~~revenues.

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

On September 25, 2020, we entered into a Master Manufacturing Services Agreement (the “Karma Agreement”) with Karma, ~~Automotive LLC (“Karma”),~~ pursuant to which Karma agreed to provide certain manufacturing services for the production of our vehicles. The initial statement of work provides that Karma will perform assembly of a certain quantity of the AYRO 411 vehicles and provide testing, materials management and outbound logistics services. For such services in the initial statement of work, we agreed to pay $1.2 million to Karma, of which (i) $0.52 million was paid at closing and (ii) $0.64 million iswas due and payable five months following the satisfaction of certain production requirements. ~~The Karma Agreement expires (i) 12 months from the start~~This second payment was accrued for as of volume production of the vehicles or (ii) such earlier time as the parties mutually agree in writing. In addition, Karma, in its sole discretion, may terminate the Karma Agreement at any time, without cause, upon twelve months’ prior written notice. We may terminate the Karma Agreement, without cause, upon six months’ prior written notice.December 31, 2021 and paid February 3, 2022.

On February 24, 2021, the Karma Agreement was amended to allow Karma to assemble a certain number of units of the AYRO ~~411~~411x vehicle. The Karma ~~began assembling~~Agreement expires (i) in September 2022 or (ii) at such earlier time as the parties mutually agree in writing.

We are working with Karma to wind down production ~~units~~of the AYRO 411x platform as we transition to production of the AYRO Z, and we intend to retire the 411x assembly line in ~~June of 2021.~~late September 2022.

During 2020, we entered into a supply agreement with Gallery Carts (“Gallery”), a leading provider of food and beverage kiosks, carts, and mobile storefront ~~solutions (the “Gallery Agreement).~~solutions. Joint development efforts have led to the launch of the parties’ first all-electric configurable mobile hospitality vehicle for “on-the-go” venues across the United States. This innovative solution permits food, beverage and merchandising operators to bring goods directly to consumers.

The configurable Powered Vendor Box, in the rear of the vehicle, features long-life lithium batteries that power the preconfigured hot/cold beverage and food equipment and is directly integrated with the ~~Club Car 411.~~411 and 411x. The canopy doors, as well as the full vehicle, can be customized with end-user logos and graphics to enhance the brand experience. Gallery, with 40 years of experience delivering custom food kiosk solutions, has expanded into electric mobile ~~electric~~delivery vehicles, as customers increasingly want food, beverages and merchandise delivered to where they are gathering. For example, a recent study conducted by Technomic found that a large majority of students, 77%, desired alternative mobile and to-go food options on ~~campus.~~campuses.

Gallery, ~~Carts,~~ a premier distributor of ~~Club Car~~ 411 and 411x low-speed electric vehicles manufactured by AYRO, has a diverse clientele throughout mobile food, beverage and merchandise distribution markets, for key customer applications such as university, corporate and government campuses, major league and amateur-level stadiums and arenas, resorts, airports and event centers. In addition to finding innovative and safe ways to deliver food and beverages to their patrons, reducing and ultimately eliminating their carbon footprint is a top priority for many of these customers.

On January 25, 2021, we entered into a securities purchase agreement with certain institutional and accredited investors, pursuant to which we agreed to issue and sell in a registered direct offering an aggregate of 3,333,334 shares at an offering price of $6.00 per share, for gross proceeds of $20.0 million before the deduction of fees and offering expenses. In a concurrent private placement, we sold to such investors warrants to purchase, at any time on or after July 26, 2021 and on or before 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 3,333,334 shares, at an exercise price of $6.93 per share.

In connection with the January 25, 2021, securities purchase agreement, we issued Palladium Capital Group, LLC (collectively with its affiliates, “Palladium”) a warrant to purchase 233,334 shares of common stock (which equals 7.0% of the aggregate number of shares of common stock sold in the January 2021 registered direct offering). The warrants issued to Palladium have the same terms as the investor warrants issued under the January 25, 2021, concurrent private placement.

On February 11, 2021, we entered into a securities purchase agreement with certain institutional and accredited investors, pursuant to which we agreed to issue and sell in a registered direct offering an aggregate of 4,400,001 shares of common stock at an offering price of $9.50 per share, for gross proceeds of $41.8 million before the deduction of fees and offering expenses. Each purchaser was also granted an option to purchase, on or before February 16, 2022, additional shares of common stock equal to the full amount of 75% of the common stock it purchased at the initial closing, or an aggregate of 3,300,001 shares, at an exercise price of $11.50 per share.

Palladium and Spartan Capital Securities, LLC were entitled to a fee equal to 8% of the gross proceeds raised in the February 2021 registered direct offering and warrants to purchase an aggregate of 271,158 shares of our common stock at an exercise price of $10.925 per share and 35,885 shares of our common stock at an exercise price of $10.45 per share. The warrants are exercisable immediately following issuance and terminate five years following issuance.

Pursuant to the Securities Purchase Agreement dated July 21, 2020, during the six months ended June 30, 2021, investors purchased 302,500 additional shares of our common stock par value $0.0001 per share, at an offering price of $5.00 per share, for gross proceeds of $1.5 million.

In March 2019, we entered into the MPA with Club Car. In partnership with Club Car and in interaction with its substantial dealer network, we have redirected our business development resources towards supporting Club Car’s enterprise and fleet sales function as Club Car proceeds in its new product introduction initiatives. We are evaluating our relationship with Club Car and may seek to replace Club Car with a new business partner for selling our products beginning with the AYRO Z.

Our business, results of operations and financial condition have been adversely impacted by the ~~recent~~ coronavirus outbreak both in China and the United States. This has delayed our ability to timely procure raw materials from our supplier in China, which in turn, has delayed shipments to and corresponding revenue from customers. The pandemic and social distancing directives have interfered with our ability, and the ability of our employees, workers, contractors, suppliers and other business partners to perform our and their respective responsibilities and obligations relative to the conduct of our business. The COVID-19 pandemic poses restrictions on our employees’ and other service providers’ ability to travel on pre-sales meetings, customers’ abilities to physically meet with our employees and the ability of our customers to test drive or purchase our vehicles and shutdowns that may be requested or mandated by governmental authorities, and we expect these restrictions to continue at least ~~though~~through the third quarter of ~~2021.~~2022. The pandemic adversely impacted our sales and the demand for our products in ~~2020~~2021 and the first half of ~~2021~~2022, and is expected to continue adversely impacting demand for our products ~~throughout~~at least through the ~~remainder~~third quarter of ~~2021.~~2022.

Countervailing tariffs on certain goods from China ~~continue~~continued to have an adverse impact on raw material costs throughout 2021 and the ~~Company believes this impact will~~first half of 2022 and are expected to continue to do so through the third quarter of 2022.

A majority of our raw materials have historically been shipped via container from overseas vendors in China, such as Cenntro, which has been our largest supplier. Although we intend to reduce our reliance on foreign suppliers by sourcing components for the AYRO Z from vendors in the United States, our vendors may be reliant on foreign suppliers. We rely heavily on third parties, including ocean carriers and truckers, in that process. The global shipping industry is experiencing a shortage of shipping capacity, trucking shortages, increased ocean shipping rates and increased trucking and fuel costs. As a result, our receipt of imported products has been, and may continue to be, disrupted or delayed.

The shipping industry is also experiencing issues with port congestion and pandemic-related port closures and ship diversions. A port worker strike, work slow-down or other transportation disruption in domestic ports could significantly disrupt our business or that of our vendors. We are currently experiencing such disruption due to multiple factors brought about by the COVID-19 pandemic, such as supply and demand imbalance, a shortage of warehouse workers, truck drivers, transport equipment (tractors and trailers) and other causes, which have resulted in heightened congestion, bottlenecks and gridlock, leading to abnormally high transportation delays. This has materially and adversely affected our business and financial results for the three and six months ended June 30, 2022 and could continue to materially and adversely affect our business and financial results throughout the remainder of ~~2021.~~2022. If significant disruptions along these lines continue, this could lead to further significant disruptions in our business, delays in shipments to us and our vendors, and revenue and profitability shortfalls, which could adversely affect our business, prospects, financial condition and operating results.

The global shipping industry is also experiencing unprecedented increases in shipping rates from ocean carriers due to various factors, including limited availability of shipping capacity. For example, the cost of shipping our products by ocean freight has recently increased to at least three times historical levels and has had a corresponding impact upon our profitability. Additionally, if further increases in fuel prices occur, our transportation costs would likely further increase. Shipping pricing and logistical challenges have had an unfavorable impact on our margins and our ability to assemble vehicles during 2021 and the first half of 2022. We expect these impacts to continue through the third quarter of 2022.

Beginning in the second quarter of 2021, we offered a configuration of our 411x powered by lithium-ion battery technology. Additionally, our powered food box offerings are currently powered by lithium-ion battery technology. Our business depends on the continued supply of battery cells and other parts for our vehicles. During the year 2021 and the first half of ~~2021,~~2022 we ~~have~~ at times experienced ~~a shortage~~supply chain shortages of both lithium-ion battery cells and other critical components used to produce our vehicles, which has slowed our planned production of vehicles. We expect ~~the shortage~~these shortages of lithium-ion battery cells and the varying supply limitations of other critical components to ~~continue~~continued impacting our business through ~~at least~~ the ~~end~~third quarter of ~~2021.~~2022. In addition, we could be impacted by shortages of other products or raw materials, including silicon chips that we use or our suppliers use in the production of our vehicles or parts sourced for our vehicles.

In December 2021 we began design and development on the new 411 fleet vehicle model year 2023 refresh the AYRO Z, including updates on our supply chain evolution, the offshoring/onshoring mix, our manufacturing strategy, and our annual model year refresh program. We intend for the new AYRO Z to utilize assemblies and products that will largely eliminate our dependency on Chinese imports and optimize the supply chain to North American and European sources. We expect to unveil the first AYRO Z prototype in the fourth quarter of 2022.

As of June 30, 2022, we determined that testing of obsolescence was required for inventory due to the quality of certain purchased components from Cenntro’s lithium-ion line (“NCM”). 17 vehicles tested in the second quarter of 2022 were determined to have 49 unique failures. An inspection of the remaining NCM units revealed a 100% failure rate. As a result, all inventory associated with Cenntro’s NCM line was written off for $1,317,289 to cost of goods sold. As of December 31, 2021 the balance of prepaid expenses and accrued expenses with Cenntro was $602,016. As of June 30, 2022, there was no longer a balance. Impairments of prepaid expenses led to a write-down, netted with the balance in accrued expenses. The remainder of the balance was expensed through cost of goods sold for $621,097.

On January 14, 2022, Curtis Smith, who served as the Company’s Chief Financial Officer, resigned from his role as an officer and employee of the Company. The Company and Mr. Smith entered into a General Release and Severance Agreement (the “Smith Severance Agreement”). Pursuant to the Smith Severance Agreement, Mr. Smith received a cash separation payment in the amount of $237,500. The Smith Severance Agreement also provides for certain customary mutual covenants regarding confidentiality, indemnification and non-disparagement. Under the Smith Severance Agreement, the treatment of any outstanding equity awards to Mr. Smith shall be determined in accordance with the terms of the Company’s 2017 Long Term Incentive Plan (the “2017 LTIP”) and the applicable award agreement.

On January 14, 2022, Brian Groh, who served as the Company’s Chief of Business Development, terminated his engagement with the Company. As such, the independent contractor agreement between the Company and 2196005 Ontario, Inc., an Ontario corporation owned and controlled by Mr. Groh, dated September 16, 2019 was terminated. The Company and Mr. Groh entered into a General Release Agreement (the “Groh Release Agreement”). Pursuant to the Groh Release Agreement, Mr. Groh received a cash separation payment in the amount of $237,500. The Groh Release Agreement also provides for certain customary mutual covenants regarding confidentiality, indemnification and non-disparagement. Under the Groh Release Agreement, the treatment of any outstanding equity awards to Mr. Groh shall be determined in accordance with the terms of the 2017 LTIP and the applicable award agreement.

On January 14, 2022, Richard Perley, who served as the Company’s Chief Marketing Officer, terminated his engagement with the Company. As such, the independent contractor agreement between the Company and PerlTek, a corporation owned and controlled by Mr. Perley, dated August 27, 2018, was terminated. In connection with the termination of such agreement, the Company and Mr. Perley entered into a General Release Agreement (the “Perley Release Agreement”) Pursuant to the Perley Release Agreement, Mr. Perley received a cash separation payment in the amount of $237,500. The Perley Release Agreement also provides for certain customary mutual covenants regarding confidentiality, indemnification and non-disparagement. Under the Perley Release Agreement, the treatment of any outstanding equity awards to Mr. Perley shall be determined in accordance with the terms of the Company’s 2017 LTIP and the applicable award agreement.

We derive revenue from the sale of our four-wheeled electric vehicles, and, to a lesser extent, shipping, parts and service fees. In the past we also derived rental revenue from vehicle revenue sharing agreements with our tourist destination fleet operators, ~~or Destination Fleet Operators (“DFOs”),~~ and, to a lesser extent, shipping, parts and service fees. Provided that all other revenue recognition criteria have been met, we typically recognize revenue upon shipment, as title and risk of loss are transferred to customers and channel partners at that time. Products are typically shipped to dealers or directly to end customers, or in some cases to our international distributors. These international distributors assist with import regulations, currency conversions and local language. Our vehicle product sales revenues vary from period to period based on, among other things, the customer orders received and our ability to produce and deliver the ordered products. Customers often specify requested delivery dates that coincide with their need for our vehicles.

Because these customers may use our products in connection with a variety of projects of different sizes and durations, a customer’s orders for one reporting period generally do not indicate a trend for future orders by that customer. Additionally, order patterns do not necessarily correlate amongst customers.

Cost of goods sold primarily consists of costs of materials and personnel costs associated with manufacturing operations, and an accrual for post-sale warranty claims. Personnel costs consist of wages and associated taxes and benefits. Cost of goods sold also includes freight and changes to our warranty reserves. Allocated overhead costs consist of certain facilities and utility costs. We expect cost of revenue to increase in absolute ~~dollar,~~dollars as product revenue increases. As of June 30, 2022, we determined that testing of obsolescence was required for inventory due to the quality of NCM received from Cenntro. 17 vehicles tested in the second quarter of 2022 were determined to have 49 unique failures. An inspection of the remaining NCM units revealed a 100% failure rate. As a result, all inventory associated with Cenntro’s NCM line was written off to cost of goods sold for $1,317,289. Impairments of prepaid expenses led to a write-down, netted with the balance in accrued expenses. The remainder of the balance was expensed through cost of goods sold for $621,097.

Our operating expenses consist of general and administrative, sales and marketing and research and development ~~(“R&D”)~~ expenses. Salaries and personnel-related costs, benefits, and stock-based compensation expense are the most significant components of each category of operating expenses. Operating expenses also include allocated overhead costs for facilities and utility costs.

R&D expense consists primarily of employee compensation and related expenses, prototype expenses, depreciation associated with assets acquired for R&D, amortization of product development costs, product strategic advisory fees, third-party engineering and contractor support costs and allocated overhead. We expect our R&D expenses to increase in absolute dollars as we continue to invest in new and existing products.

Sales and marketing expense consist primarily of employee compensation and related expenses, sales commissions, marketing programs, travel and entertainment expenses and allocated overhead. Marketing programs consist of advertising, tradeshows, events, corporate communications and brand-building activities. We expect sales and marketing expenses to increase in absolute dollars as we expand our sales force, expand our product lines, increase marketing resources, and further develop sales channels.

General and administrative expense consists primarily of employee compensation and related expenses for administrative functions including finance, legal, human resources and fees for third-party professional services, and allocated overhead. We expect our general and administrative expense to increase in absolute dollars as we continue to invest in growing our business.

We account for stock-based compensation expense in accordance with ~~ASC~~Accounting Standards Codification (“ASC”) 718, Compensation—Stock Compensation, which requires the measurement and recognition of compensation expense for share-based awards based on the estimated fair value on the date of grant.

The fair value of each stock option granted to employees is estimated on the date of the grant using the Black-Scholes option-pricing model and the related stock-based compensation expense is recognized over the vesting period during which an employee is required to provide service in exchange for the award. The fair value of the options granted to non-employees is measured and expensed as the options vest.

Restricted stock grants are stock awards that entitle the holder to receive shares of our common stock as the award vests over time. The fair value of each restricted stock grant is based on the fair market value price of common stock on the date of grant, and it is measured and expensed as ~~the options vest.~~it vests.

We estimate 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 our 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 we do not currently pay or plan to pay a dividend on its common stock, the expected dividend yield was zero.

Our operating expenses consist of general and administrative, sales and marketing and research and development expenses. Salaries and personnel-related costs, benefits, and stock-based compensation expense are the most significant components of each category of operating expenses. Operating expenses also include allocated overhead costs for facilities and utility costs.

Research and development expense consists primarily of employee compensation and related expenses, prototype expenses, depreciation associated with assets acquired for research and development, amortization of product development costs, product strategic advisory fees, third-party engineering and contractor support costs and allocated overhead. We expect our research and development expenses to increase in absolute dollars as we continue to invest in new and existing products.

Sales and marketing expense consists primarily of employee compensation and related expenses, sales commissions, marketing programs, travel and entertainment expenses and allocated overhead. Marketing programs consist of advertising, tradeshows, events, corporate communications and brand-building activities. We expect sales and marketing expenses to increase in absolute dollars as we expand our sales force, expand our product lines, increase marketing resources and further develop sales channels.

Other (expense) income consists of income received or expenses incurred for activities outside of our core business. Other expense consists primarily of interest ~~expense.~~expense and unrealized gain/loss on marketable securities.

Provision for income taxes consists of estimated income taxes due to the United States government and to the state tax authorities in jurisdictions in which we conduct business. In the case of a tax deferred asset, we reserve the entire value for future periods.

Three months ended June 30, ~~2021~~2022 compared to three months ended June 30, ~~2020~~2021

The following table sets forth our results of operations for each of the ~~three months ended June 30, 2021 and 2020.~~periods set forth below:

Revenue was ~~$0.52~~$0.98 million for the three months ended June 30, ~~2021,~~2022 as compared to ~~$0.29~~$0.52 million for the same period in ~~2020,~~2021, an increase of ~~82.6%~~88%, or ~~$0.24~~$0.46 million. The increase in revenue was the result of ~~an increase~~increases in ~~sales pursuant to~~ the ~~Gallery Agreement~~volume of sales of our vehicles ~~deriving from~~and in the ~~MPA with Club Car,~~price per unit of the AYRO 411x, related powered-food box sales and other vehicle options. Revenue was impacted by the switchover from the original AYRO 411 model to the launch of the 411x, which was first delivered in June of 2021. While awaiting delivery of the new 411x model, sales declined during the month of May 2021. As discussed under “Factors Affecting Results of Operations,” the COVID-19 pandemic adversely impacted sales and the demand for our vehicles during 2020 and the first half of 2021.

Cost of goods sold increased by ~~$0.22~~$2.4 million, or ~~109%~~556.8% for the three months ended June 30, ~~2021,~~2022, as compared to the same period in ~~2020,~~2021, corresponding with ~~the~~a $1.32 million write-off of NCM inventory, due to a 100% failure rate, and $0.62 million of Cenntro prepaid and accrued balances, as well as an increase in vehicle sales, ~~and~~ an increase in time-of-order options for our vehicles and specialty ~~products.~~products, and an increase in shipping costs from China.

Gross margin percentage was (188.1)% for the three months ended June 30, 2022, as compared to 17.5% for the three months ended June 30, ~~2021, as compared to 28.1% for the three months ended June 30, 2020.~~2021. The decrease in gross margin percentage was primarily due to ~~an increase in tariffs on raw materials imported from China~~the write-off of NCM inventory, and the write down of Cenntro balances, as well as to an increase in shipping costs due to the global COVID-19 ~~pandemic.~~pandemic, inflation and global supply chain constraints. Vehicle sales prices were increased in both January 2021 and October 2021 to partially offset these cost increases.

Research and development (“R&D&D”) expense was ~~$3.04~~$1.05 million for the three months ended June 30, ~~2021,~~2022, as compared to ~~$0.18~~$3.04 million for the same period in ~~2020, an increase~~2021, a decrease of ~~$2.86 million.~~$2 million, or 65.6%. The ~~increase~~decrease was primarily due to a repositioning of expenses related to personnel costs for our engineering, design, and research teams ~~as we expanded~~from the ~~suite of option packages for our vehicles and~~ initiated development of our planned next-generation three-wheeled ~~vehicle.~~vehicle to the AYRO Z. We had ~~an increase~~a decrease in ~~salaries and related expenses of $0.25 million, an increase of $2.58 million from~~ R&D contracting for professional service and design costs of $1.85 million, and a decrease in ~~design~~salaries and ~~testing material~~related expenses of ~~$0.04 million. This amount includes a vendor credit for materials of $0.05~~$0.11 million.

Sales and marketing expense was ~~$0.67~~$0.34 million for the three months ended June 30, ~~2021,~~2022, as compared to ~~$0.24~~$0.67 million for the same period in ~~2020,~~2021, a decrease of $0.33 million, or 49.3%, as we ~~expanded our sales and marketing staff and~~reduced the cost of marketing-related initiatives surrounding ~~our next-generation three-wheeled vehicle.~~the AYRO Z. Salaries and ~~wages increased~~related expenses decreased by ~~$0.25 million and stock-based compensation increased by $0.02~~$0.22 million due to the ~~addition~~restructuring of our sales and marketing resources. ~~Discretionary marketing programs increased by $0.05 million and contracting~~Expenses related to consultants for professional marketing services ~~increased~~decreased by ~~$0.08~~$0.05 million. Additionally, depreciation expense for demonstration vehicles assigned to the sales and marketing team increased by $0.02 million as compared to the same period in 2020 due to a reclassification from general and administration expenses to sales and marketing expense for demonstration vehicles assigned to the sales and marketing team.

The majority of our operating losses from continuing operations resulted from general and administrative expenses. General and administrative expenses consist primarily of costs associated with our overall operations and with being a public company. These costs include personnel, legal and financial professional services, insurance, investor relations, and ~~compliance-related~~compliance related fees. General and administrative expense was ~~$4.06~~$2.74 million for the three months ended June 30, ~~2021,~~2022, compared to ~~$0.71~~$4.06 million for the same period in ~~2020, an increase~~2021, a decrease of ~~$3.35 million. Contracting for professional services increased by $1.00~~$1.32 million, or 32.5% primarily due to a ~~result of additional audit, legal and investor relations expenses incurred to support public reporting requirements. This amount includes the cost of various expenses and an increase~~$1.2 million decrease in ~~consulting services of $0.25 million. Board~~stock based compensation ~~expense decreased by $0.04 million.~~expense. Salaries and related ~~costs~~expenses excluding stock based compensation increased by ~~$0.36 million due to corporate expansion. Stock-based compensation expense increased by $1.47~~$0.49 million, primarily due to ~~the~~expanding headcount. Fulfillment expense ~~of director~~ and ~~employee equity awards granted in 2020.~~

~~Depreciation decreased~~rent expense increased by $0.14 million and $0.01 million, primarily driven by fully depreciating the tooling for our AYRO 311 product line during 2020 and the reclassification of depreciation expense for demonstration vehicles assigned to the sales and marketing team due to our redirection of our marketing focus in-house. Rent increased $0.06 million for the three months ended June 30, 2021, as compared to the same period in 2020 due to the additional rent expense related to our new office space.

Interest expense decreased by $0.12 million for the three months ended June 30, 2021, as compared to the same period in 2020, primarily due to payoff of debt and loans during 2020. The decrease in the discount on debt is due to the debtrespectively. We also recorded ~~from the equity issuances associated with certain debt instruments issued prior to the Merger during the three months ended June 30, 2020. A~~a loss on ~~the extinguishment~~investment of ~~debt related to the early redemption of a note was recorded for $0.35 million in 2020.~~$0.01 million. Depreciation increased by $0.02 million.

Six months ended June 30, ~~2021~~2022 compared to six months ended June 30, ~~2020~~2021

The following table sets forth our results of operations for each of the ~~six months ended June 30, 2021 and 2020.~~periods set forth below:

Revenue was $2.01 million for the six months ended June 30, ~~2021, total revenue increased to $1.31 million~~2022 as compared to ~~$0.43~~$1.32 million for the same period in ~~2020,~~2021, an increase of ~~203%~~53.2%, or ~~$0.88~~$0.70 million. The increase in revenue was the result of an increase in the volume of sales of our vehicles ~~deriving from our MPA with Club Car,~~and in the price per unit of the AYRO 411x, related powered-food box sales ~~pursuant to the Gallery Agreement~~ and other vehicle options. ~~As discussed under “Factors Affecting Results of Operations,” the COVID-19 pandemic adversely impacted sales and the demand for our vehicles during 2020 and the first half of 2021.~~

Cost of goods sold increased by ~~$0.76~~$2.93 million, or ~~237%~~272.5% for the six months ended June 30, ~~2021,~~2022, as compared to the same period in ~~2020,~~2021, corresponding with the $1.32 million write-off of NCM inventory, due to a 100% failure rate, and a $0.62 million write down of Cenntro prepaid and accrued balances, as well as an increase in vehicle sales, ~~and~~ an increase in time-of-order options for our vehicles and specialty ~~products.~~products, and an increase in shipping costs from China.

Gross margin percentage was ~~18.0%~~(99%) for the six months ended June 30, ~~2021,~~2022, as compared to ~~26.3%~~18% for the six months ended June 30, ~~2020.~~2021. The decrease in gross margin percentage was primarily due to ~~an increase in tariffs on raw materials imported from China~~the write-off of NCM inventory, and the write down of Cenntro balances, as well as an increase in shipping costs due to the global COVID-19 ~~pandemic.~~pandemic, inflation and global supply chain constraints. Vehicle sales prices were increased in both January 2021 and October 2021 to partially offset these cost increases.

Research and development (“R&D&D”) expense was ~~$4.97~~$1.91 million for the six months ended June 30, ~~2021,~~2022, as compared to ~~$0.34~~$4.97 million for the same period in ~~2020, an increase~~2021, a decrease of ~~$4.63 million.~~$3.06 million, or 61.5%. The ~~increase~~decrease was primarily due to a repositioning of expenses related to personnel costs for our engineering, design, and research teams ~~as we expanded~~from the ~~suite of option packages for our vehicles and~~ initiated development of our planned next-generation three-wheeled vehicle ~~in 2021.~~

to the AYRO Z. We had ~~an increase~~a decrease in ~~salaries and related expenses of $0.44 million, an increase of $3.76 million from~~ R&D contracting for professional service and design costs of $2.57 million, and ~~an increase~~a decrease in ~~design~~salaries and ~~testing material~~related expenses of ~~$0.21 million. This amount includes a vendor credit for materials of $0.05~~$0.16 million.

Sales and marketing expense was ~~$1.23~~$1.18 million for the six months ended June 30, ~~2021,~~2022, as compared to ~~$0.56~~$1.23 million for the same period in ~~2020, an increase~~2021, a decrease of ~~$0.67~~$0.04 million, or ~~120%. As~~3.5%, as we ~~expanded our sales and marketing staff and~~reduced the cost of marketing-related initiatives surrounding ~~our next-generation three-wheeled vehicle.~~the AYRO Z. Salaries and ~~wages~~related expenses increased by ~~$0.34 million and stock-based compensation increased by $0.05~~$0.18 million due to the ~~addition~~restructuring of our sales and marketing resources. ~~Discretionary marketing programs increased by $0.1 million and contracting~~Expenses related to consultants for professional marketing services ~~increased~~decreased by ~~$0.13~~$0.10 million. Additionally, depreciation expense for demonstration vehicles assigned to the sales and marketing team increased by $0.05 million as compared to the same period in 2020 due to a reclassification from general and administration expenses to sales and marketing expense for demonstration vehicles assigned to the sales and marketing team.

The majority of our operating losses from continuing operations resulted from general and administrative expenses. General and administrative expenses consist primarily of costs associated with our overall operations and with being a public company. These costs include personnel, legal and financial professional services, insurance, investor relations, and ~~compliance-related~~compliance related fees. General and administrative expense was ~~$7.36~~$5.45 million for the six months ended June 30, ~~2021,~~2022, compared to ~~$1.96~~$7.36 million for the same period in ~~2020, an increase~~2021, a decrease of ~~$5.40 million. Contracting for professional services increased by $0.89~~$1.91 million, or 26%, primarily due to a ~~result of additional audit, legal and investor relations expenses incurred to support public reporting requirements. This amount includes an increase~~$2.6 million decrease in ~~consulting services of $0.02 million. Board~~stock based compensation ~~expense increased by $0.24 million.~~expense. Salaries and related ~~costs~~expenses excluding stock based compensation increased by ~~$0.69 million due to corporate expansion. Stock-based compensation expense increased by $3.00~~$0.91 million, primarily due to ~~the~~expanding headcount. Fulfillment expense ~~of director~~ and ~~employee equity awards granted in 2020. Other public company-related expenses~~rent expense increased by ~~$0.21~~$0.31 million and $0.09 million, respectively. We also recorded a loss on investment of $0.04 million. Depreciation increased by $0.04 million.

Depreciation decreased by $0.03 million, primarily driven by fully depreciating the tooling for our AYRO 311 product line during 2020 and the reclassification of depreciation expense for demonstration vehicles assigned to the sales and marketing team due to our redirection of our marketing focus in-house. Rent increased $0.01 million for the six months ended June 30, 2021, as compared to the same period in 2020 due to the additional rent expense related to our new office space.

Interest expense decreased by $0.23 million for the six months ended June 30, 2021, as compared to the same period in 2020, primarily due to payoff of debt and loans during 2020. The decrease in the discount on debt is due to the debt recorded from the equity issuances associated with certain debt instruments issued prior to the Merger during the six months ended June 30, 2020. A loss on the extinguishment of debt related to the early redemption of a bridge note was recorded for $0.35 million in 2020.

We present Adjusted EBITDA because we consider it to be an important supplemental measure of our operating performance, and we believe it may be used by certain investors as a measure of our operating performance. Adjusted EBITDA is defined as income (loss) from operations before interest income and expense, income taxes, depreciation, amortization of intangible assets, amortization of discount on debt, impairment of long-lived assets, stock-based compensation expense and certain non-recurring expenses. Adjusted EBITDA is not a measurement of financial performance under generally accepted accounting principles in the United States, (“GAAP”).

Because of varying available valuation methodologies, subjective assumptions and the variety of equity instruments that can impact our non-cash operating expenses, we believe that providing a non-GAAP financial measure that excludes non-cash and non-recurring expenses allows for meaningful comparisons between our core business operating results and those of other companies, as well as providing us with an important tool for financial and operational decision making and for evaluating our own core business operating results over different periods of time.

Adjusted EBITDA may not provide information that is directly comparable to that provided by other companies in our industry, as other companies in our industry may calculate non-GAAP financial results differently, particularly related to non-recurring, unusual items.

Adjusted EBITDA is not a measurement of financial performance under GAAP and should not be considered as an alternative to operating income or as an indication of operating performance or any other measure of performance derived in accordance with GAAP. We do not consider Adjusted EBITDA to be a substitute for, or superior to, the information provided by GAAP financial results.

~~Below is a reconciliation of Adjusted EBITDA to net loss to common stockholders for the three months ended June 30, 2021 and 2020.~~

~~Below is a reconciliation of Adjusted EBITDA to net loss to common stockholders for the six months ended June 30, 2021 and 2020.~~

As of June 30, 2022, we had $40.89 million in cash, $17.97 million in marketable securities and working capital of $62.49 million. As of December 31, 2021, we had ~~$87.90~~$69.16 million in cash and working capital of ~~$87.72~~$72.31 million. ~~As of December 31, 2020, we had $36.54 million~~The decrease in cash and working capital ~~of $38.50 million. The increase in cash and working capital was~~were primarily a result of our ~~capital raising activities during the six months ended June 30, 2021.~~

~~Our sources of cash since inception have been predominantly from the sale of equity~~inventory write-down and ~~debt.~~

On January 25, 2021, we entered into a securities purchase agreement with certain institutional and accredited investors, pursuant to which we agreed to issue and sell in a registered direct offering an aggregate of 3,333,334 shares at an offering price of $6.00 per share, for gross proceeds of $20.00 million before the deduction of fees and offering expenses. In a concurrent private placement, we sold to such investors warrants to purchase, at any time on or after July 26, 2021 and on or before 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 3,333,334 shares, at an exercise price of $6.93 per share.

On February 11, 2021, we entered into a securities purchase agreement with certain institutional and accredited investors, pursuant to which we agreed to issue and sell in a registered direct offering an aggregate of 4,400,001 shares of common stock at an offering price of $9.50 per share, for gross proceeds of $41.80 million before the deduction of fees and offering expenses. Each purchaser was also granted the option to purchase, on or before February 16, 2022, additional shares of common stock equal to the full amount of 75% of the common stock it purchased at the initial closing, or an aggregate of 3,300,001 shares, at a purchase price of $11.50 per share.

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 $0.0001 per share, at an offering price of $5.00 per share, for gross proceeds of $1.5 million.

~~During the six months ended June 30, 2021, we issued 469,576 shares of common stock from the exercise of stock options and received cash proceeds of $1.2 million.~~our operating loss, respectively.

Our business is capital-intensive, and future capital requirements will depend on many factors, including our growth rate, the timing and extent of spending to support development efforts, the results of our strategic review, the expansion of our sales and marketing teams, the timing of new product introductions and the continuing market acceptance of our products and services. We ~~may also use~~are working to control expenses and deploy our capital in the most efficient manner.

Following the hiring of our new Chief Executive Officer in the third quarter of 2021, we are evaluating other options for the strategic deployment of capital beyond our ongoing strategic initiatives, including potentially entering other segments of the electric vehicle market. We anticipate being opportunistic with our capital, and we intend to explore potential partnerships and acquisitions ~~or transactions.~~that could be synergistic with our competitive stance in the market.

We are 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. Based on the foregoing, management believes that the existing cash at June 30, ~~2021,~~2022 will be sufficient to fund operations for at least the next twelve months following the date of this report.

In connection with the strategic review, we canceled development of our planned next-generation three-wheeled vehicle. In December 2021, we began design and development on the new 411 fleet vehicle model year 2023 refresh, the AYRO Z.

During the six months ended June 30, ~~2021,~~2022, we used ~~$7.68~~$9.83 million in cash in operating activities, an increase in use of ~~$4.96~~$2.15 million when compared to the cash used in operating activities of ~~$2.72~~$7.68 million during the same period in ~~2020.~~2021. The increase in cash used in operating activities was primarily a result of prepayments for ~~inventory~~research and ~~manufacturing services,~~development of the AYRO Z, payments of accrued expenses, severance, and an increase in ~~accounts receivable, offset by a decrease of accrued expenses.~~our operating loss as we continue to build our core business.

Our ability to generate cash from operations in future periods will depend in large part on profitability, the rate and timing of collections of our accounts receivable, inventory turns and our ability to manage other areas of working capital.

During the six months ended June 30, ~~2021,~~2022, we used cash of ~~$0.54~~$18.44 million ~~from~~in investing activities as compared to ~~$2.81~~$0.54 million of cash ~~provided by~~used in investing activities during ~~2020, a decrease~~2021, an increase of ~~$3.35~~$17.9 million. The net ~~decrease~~increase was primarily due to our ~~receipt of proceeds of $3.06 million~~net investment in ~~connection with the Merger during~~marketable securities.

2022, we had no financing activities of note. During the six months ended June 30, 2021, we received net proceeds of an aggregate of ~~$58.31~~$58.25 million from the issuance of common stock, net of fees and expenses, ~~and~~ $0.10 million from the exercise of warrants for cash. In addition, during June 2021, we issued 469,576 shares of common stock from the exercise of stock options and received cash proceeds of $1.22 million.

During the six months ended June 30, 2020, we generated $0.50 million of debt financing from certain DropCar investors, $0.60 million in debt financing from a private investor, both of which notes were repaid upon closing of the Merger. Additionally, in May 2020, we received $0.22 million in a Paycheck Protection Program loan (“PPP Loan”) from our bank. The debt proceeds were netted with $1.1 million in loan repayments and $6.46 million in generation of proceeds from the issuance of common stock, net of fees and expenses.

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 varies and, in many cases, is 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.

AsOur management’s discussion and analysis of ~~June 30, 2021,~~our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles, or GAAP. The preparation of our consolidated financial statements and related disclosures requires us to make estimates, assumptions and judgments that affect the reported amount of assets, liabilities, revenue, costs and expenses and related disclosures. We base our assumptions, estimates and judgments on historical experience, current trends and other factors that management believes to be relevant at the time our consolidated financial statements are prepared. Accordingly, we ~~did~~evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ from these estimates under different assumptions and conditions.

Our critical accounting estimates have not ~~have any off-balance sheet arrangements, as defined~~changed materially from those previously reported in ~~Item 303(a)(4)(ii) of SEC Regulation S-K, such as the use of unconsolidated subsidiaries, structured finance, special purpose entities or variable interest entities.~~our Form 10-K.

~~Our~~Under the supervision and with the participation of management, including our principal executive ~~officer~~ and ~~our~~ principal financial ~~officer~~officers, we evaluated the effectiveness of our disclosure controls and procedures as of June 30, ~~2021.~~2022. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Based on the evaluation of our disclosure controls and procedures as of June 30, ~~2021,~~2022, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were ineffective due to the material weakness in internal control over financial reporting discussed below, as well as our continued implementation of disclosure controls and procedures following the Merger. As a result of the Merger transaction, the Company is in the process of assessing and improving its internal control processes and expanding its financial operations and reporting infrastructure.

In its assessment of the effectiveness of internal control over ~~financing~~financial reporting as of December 31, ~~2020,~~2021, management identified a material weakness ~~related~~ to segregation of duties. Specifically, due to limited resources and headcount, we did not have multiple people in the accounting function ~~to provide~~ for a full segregation of ~~duties as required of a public company.~~duties.

We have ~~taken and continue~~engaged a third party to take remedial steps to improve our internal control over financial reporting by hiring additional personnel with added expertise in public company reporting and expect to conclude that the material weakness has been remediated as these individuals progress through the onboarding process. We also continue to expand the functionalityconduct a full assessment of our ~~internal accounting systems to provide for higher levels of automation~~controls and ~~assurance in the financial reporting function.~~procedures.

Except as ~~otherwise~~ described above under “Plan for Remediation of Material Weakness,” there has been no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

~~Other than the proceedings identified in Note 14 of the Notes to the Financial Statements in this Form 10-Q, there~~There have been no changes to the legal proceedings disclosed in our ~~Annual Report on~~ Form ~~10-K filed for the fiscal year ended December 31, 2020.~~10-K.

Except as set forth below, there have been no material changes to the risk factors as identified in our ~~Annual Report on~~ Form ~~10-K filed March 31, 2021, as amended.~~10-K.

If the MPA is terminated, we will need to identify new strategic channel partners to support the sales of our vehicles.

The majority of our sales are comprised of sales to Club Car pursuant to the MPA. We are currently evaluating our relationship with Club Car and may seek to replace them as a business partner. If the MPA is terminated, we will need to identify new strategic channel partners to support the sales of our vehicles. It may take time to identify and add these partners and to train new personnel to market and support our vehicles. We may be unable to identify suitable partners, or such partners may not successfully market and sell our vehicles and may not devote sufficient time and resources to enable our vehicles to develop, achieve or sustain market acceptance. Failure to enter into arrangements with and retain a sufficient number of high-quality strategic channel partners could increase our marketing costs, adversely impact buying and inventory patterns, payment terms or other contractual terms, sell-through or delivery of our vehicles or curtail our routes-to-market, and could have a material adverse effect on our prospects, business, financial condition or results of operations.

If we lose our exclusive license to manufacture the AYRO 411x model in North America, Cenntro could sell identical or similar products through other companies or directly to our customers.

Cenntro, which has historically been our largest supplier, owns the design of ~~lithium-ion battery cells, which, if not appropriately managed~~the AYRO 411x model and ~~controlled, have occasionally been observed~~granted us an exclusive license to ~~catch fire or vent smoke~~manufacture the AYRO 411 and ~~flames. If such events occur~~411x models for sale in ~~our electric vehicles,~~North America, subject to certain minimum purchase requirements. On May 31, 2022, we ~~could face liability associated with our warranty, for damage or injury, adverse publicity~~received a letter from Cenntro purporting to terminate all agreements and ~~a potential safety recall, any of~~contracts between the Company and Cenntro, which would result in the termination of our exclusive license. We are in discussions with Cenntro concerning the winding up of our relationship with Cenntro. We have canceled all purchase orders and future builds with Cenntro and currently intend to only order replacement parts for vehicles from Cenntro in the future. We expect to lose our exclusive license. If we lose our exclusive license, Cenntro could sell identical or similar products through other companies or directly to our customers, which could have a material adverse effect on our results of operations and financial condition.

Once the Karma Agreement is terminated, we intend to assemble all vehicles at our own facilities. We may be unable to replace this lost manufacturing capacity on a timely and cost-effective basis, which could adversely ~~affect~~impact our ~~business, prospects, financial condition~~operations and ~~operating results.~~ability to meet delivery timelines.

~~The battery packs~~We currently depend on Karma for a significant portion of our vehicle assembly operations pursuant to the Karma Agreement. Once the Karma Agreement expires in September 2022, we intend to assemble all vehicles at our ~~electric vehicles use lithium-ion cells. On occasion,~~own facilities. We may be unable to replace this lost manufacturing capacity on a timely and cost-effective basis, which could adversely impact our operations and ability to meet delivery timelines.

We do not know whether we will be able to develop efficient, automated, low-cost manufacturing capabilities and processes that will enable us to meet the quality, price, engineering, design and manufacturing standards, as well as the manufacturing volumes, required to successfully mass market our vehicles. Even if we are successful in developing high-volume manufacturing capability and processes, we do not ~~appropriately managed and controlled, lithium-ion cells can rapidly release the energy they contain by venting smoke and flames~~know whether we will be able to do so in a manner that ~~can ignite nearby materials. Highly publicized incidents~~avoids significant delays and cost overruns, including as a result of ~~laptop computers~~factors beyond our control such as problems with suppliers and ~~cell phones bursting into flames have focused consumer attention on~~vendors or force majeure events, meets our product commercialization and manufacturing schedules and satisfies the ~~safety~~requirements of ~~these cells. These events also have raised questions about the suitability of these lithium-ion cells for automotive applications. There can~~customers and potential customers.

If we are unable to develop such manufacturing capabilities and processes, we may need to find a third party manufacturer, which may not be ~~no assurance that a field failure of our battery packs will not occur, which~~cost-effective and could ~~damage the vehicle or lead to personal injury or death and may subject~~expose us to ~~lawsuits. Furthermore, there is some risk~~a number of ~~electrocution if individuals who attempt~~additional risks that are outside our control, including:

If we or a manufacturing partner were to ~~repair battery packs~~experience delays, disruptions, capacity constraints or quality control problems in manufacturing operations, product shipments could be delayed or rejected and our customers could consequently elect to change product demand. These disruptions could have a material adverse effect on our ~~vehicles do not follow applicable maintenance~~revenues, competitive position and repair protocols. Any such damage or injury would likely lead to adverse publicity and potentially a safety recall. Any such adverse publicity could adversely affect our business, prospects, financial condition and operating results.reputation.

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

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

		PAGE
PART I	FINANCIAL INFORMATION	F-1

ITEM 1.	Financial Statements (Unaudited)	F-1
	Condensed Consolidated Balance Sheets as of June 30, ~~2021~~2022 and December 31, ~~2020~~2021	F-1
	Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, ~~2021~~2022 and ~~2020~~2021	F-2
	Condensed Consolidated Statements of Changes in Stockholders’ Equity for the Three and Six Months Ended June 30, ~~2021~~2022 and ~~2020~~2021	F-3
	Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, ~~2021~~2022 and ~~2020~~2021	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	14
ITEM 4.	Controls and Procedures	14

PART II	OTHER INFORMATION	15

ITEM 1.	Legal Proceedings	15
ITEM 1A.	Risk Factors	15
ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	15
ITEM 3.	Defaults Upon Senior Securities	15
ITEM 4.	Mine Safety Disclosures	15
ITEM 5.	Other Information	1615
ITEM 6.	Exhibits	16

SIGNATURES			1718


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2022			2021			2022			2021
Revenue	$	981,560		$	522,067		$	2,008,405		$	1,310,936
Cost of goods sold		2,827,512			430,478			4,004,657			1,074,981
Gross profit (loss)		(1,845,952	)		91,589			(1,996,252	)		235,955

Operating expenses:
Research and development		1,046,797			3,042,117			1,912,204			4,969,678
Sales and marketing		337,226			668,838			1,182,042			1,227,242
General and administrative		2,741,700			4,061,681			5,446,627			7,362,994
Total operating expenses		4,125,723			7,772,636			8,540,873			13,559,914

Loss from operations		(5,971,675	)		(7,681,047	)		(10,537,125	)		(13,323,959	)

Other income (expense):
Other income, net		10,706			18,419			19,597			28,689
Interest expense		-			(1,121	)		-			(2,312	)
Unrealized loss on marketable securities		(13,479	)		-			(35,580	)		-
Other income (expense), net		(2,773	)		17,298			(15,983	)		26,377

Net loss	$	(5,974,448	)	$	(7,663,749	)	$	(10,553,108	)	$	(13,297,582	)

Net loss per share, basic and diluted	$	(0.16	)	$	(0.22	)	$	(0.29	)	$	(0.39	)

Basic and diluted weighted average Common Stock outstanding		36,982,436			35,315,044			36,945,240			33,678,834


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2021			2020			2021			2020
Revenue	$	522,067		$	285,927		$	1,310,936		$	432,743
Cost of goods sold		430,478			205,637			1,074,981			318,792
Gross profit		91,589			80,290			235,955			113,951

Operating expenses:
Research and development		3,042,117			180,605			4,969,678			335,304
Sales and marketing		668,838			239,065			1,227,242			558,519
General and administrative		4,061,681			714,679			7,362,994			1,963,730
Total operating expenses		7,772,636			1,134,349			13,559,914			2,857,553

Loss from operations		(7,681,047	)		(1,054,059	)		(13,323,959	)		(2,743,602	)

Other income (expense):
Other income, net		18,419			3			28,689			20
Interest expense		(1,121	)		(123,576	)		(2,312	)		(229,202	)
Loss on extinguishment of debt		-			(353,225	)		-			(353,225	)
Other income (expense), net		17,298			(476,798	)		26,377			(582,407	)

Net loss	$	(7,663,749	)	$	(1,530,857	)	$	(13,297,582	)	$	(3,326,009	)

Net loss per share, basic and diluted	$	(0.22	)	$	(0.18	)	$	(0.39	)	$	(0.54	)

Basic and diluted weighted average Common Stock outstanding		35,315,044			8,291,351			33,678,834			6,131,712


	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		8	$	-		1,234	$	-		50	$	-	-	-		27,088,584	$	2,709	$	64,509,724	$	(25,154,817	)	$	39,357,616
Issuance of common stock for services				-				-				-
Issuance of common stock for services, shares				-				-				-
Restricted stock vesting
Restricted stock vesting, shares
Conversion of AYRO Preferred Stock to common stock
Conversion of AYRO Preferred Stock to common stock, shares
Issuance of Series H Preferred Stock in connection with the 2020 Merger
Issuance of Series H Preferred Stock in connection with the 2020 Merger, shares
Issuance of Series H-3 Preferred Stock in connection with the 2020 Merger
Issuance of Series H-3 Preferred Stock in connection with the 2020 Merger, shares
Issuance of Series H-6 Preferred Stock in connection with the 2020 Merger
Issuance of Series H-6 Preferred Stock in connection with the 2020 Merger, shares
Issuance of Common Stock in connection with the 2020 Merger, net of fees
Issuance of Common Stock in connection with the 2020 Merger, net of fees, shares
Exchange of debt for common stock in connection with the 2020 Merger
Exchange of debt for common stock in connection with the 2020 Merger, shares
Issuance of common stock in connection with debt offering
Issuance of common stock in connection with debt offering, shares
Exercise of warrants, net of fees
Exercise of warrants, net of fees, shares
Stock Based Compensation																				1,699,423					1,699,423
Sale of common stock, net of fees													-	-		8,035,835		804		58,269,025					58,269,829
Exercise Warrants																13,642		1		99,999					100,000
Exercise Options																74,987		7		183,418					183,425
Net Loss																						(5,633,833	)		(5,633,833	)
Balance, March 31, 2021		8		-		1,234		-		50		-	-	-		35,213,048		3,521		124,761,589		(30,788,650	)		93,976,460
Issuance of common stock for services				-				-				-				15,000		2		42,298					42,300
Stock Based Compensation				-									-	-						1,638,071					1,638,071
Exercise Options																394,589		39		1,041,452					1,041,491
Restricted stock vesting																681,725		68		(68)					0
Net Loss																						(7,663,749	)		(7,663,749	)
Balance, June 30, 2021		8	$	-		1,234	$	-		50	$	-	-	-		36,304,362	$	3,630	$	127,483,342	$	(38,452,399	)	$	89,034,573

Large accelerated filer	☐	Accelerated filer	☐

Non-accelerated filer	☒	Smaller reporting company	☒

		Emerging growth company	☐


	Three and Six Months Ended June 30, 2022

	Series H				Series H-3				Series H-6								Additional
	Preferred Stock				Preferred Stock				Preferred Stock				Common Stock				Paid-in			Accumulated
	Shares		Amount		Shares		Amount		Shares		Amount		Shares		Amount		Capital			(Deficit)			Total
Balance, December 31, 2021		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		0		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	)					-
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

			��
	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		-					-				-				7,360,985		$	9,025,245			3,948,078	$	395	$	5,001,947	$	(13,958,644	)	$	68,943
Stock Based Compensation					-				-				-					-					-		156,459					156,459
Net Loss																											(1,795,153	)		(1,795,153	)
Balance, March 31, 2020		-		$	-		-	$	-		-	$	-		7,360,985		$	9,025,245			3,948,078	$	395	$	5,158,406	$	(15,753,797	)	$	(1,569,751	)
Conversion of AYRO Preferred Stock to common stock															(7,360,985	)		(9,025,245	)		2,007,193		201		9,025,044					-
Issuance of Series H Preferred Stock in connection with the 2020 Merger		8			-																									-
Issuance of Series H-3 Preferred Stock in connection with the 2020 Merger							2,189		-																					-
Issuance of Series H-6 Preferred Stock in connection with the 2020 Merger											7,883		-																	-
Issuance of Common Stock in connection with the 2020 Merger, net of fees																					4,939,045		493		4,451,237					4,451,730
Exchange of debt for common stock in connection with the 2020 Merger																					1,030,585		103		999,897					1,000,000
Issuance of common stock in connection with debt offering																					553,330		56		461,957					462,013
Sale of common stock, net of fees																					2,200,000		220		5,064,780					5,065,000
Exercise of warrants, net of fees																					1,831,733		183		515,155					515,338
Stock Based Compensation																									150,949					150,949
Net Loss																											(1,530,856	)		(1,530,856	)
Balance, June 30, 2020		8		$	-		2,189	$	-		7,883	$	-		-		$	-			16,509,964	$	1,651	$	25,827,425	$	(17,284,653	)	$	8,544,423

	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Options to purchase common stock		1,448,193		1,060,254		1,448,193		1,060,254
Restricted Stock Unvested		520,167		-		520,167		-
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		7,346,447		4,006,205		7,346,447		4,006,205
Series H, H-3, H-6, and pre-merger AYRO Seed Preferred Stock		2,475		278,862		2,475		278,862
Totals		9,317,282		5,345,321		9,317,282		5,345,321

	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Options to purchase common stock		788,546		1,448,193		788,546		1,448,193
Restricted stock unvested		781,686		520,167		781,686		520,167
Warrants outstanding		6,106,023		7,346,447		6,106,023		7,346,447
Preferred stock outstanding		2,475		2,475		2,475		2,475
Total		7,678,730		9,317,282		7,678,730		9,317,282

	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Revenue type
Product revenue	$	506,369	$	263,465	$	1,216,568	$	393,091
Shipping revenue		15,698		22,462		57,681		37,867
Subscription revenue		-		-		-		1,785
Service income		-		-		36,687		-
	$	522,067	$	285,927	$	1,310,936	$	432,743

	Six Months Ended June 30,			Year Ended December 31,
	2021			2020
Balance, beginning of period	$	24,000		$	-
Additions		-			183,319
Transfer to revenue		(24,000	)		(159,319	)
Balance, end of period	$	-		$	24,000

	June 30, 2021
								Weighted-
						Net		Average
	Gross		Accumulated			Carrying		Amortization
	Amount		Amortization			Amount		Period
Supply chain development	$	404,622	$	(341,548	)	$	63,074		0.62 yrs.
Patents and trademarks		114,573		(40,313	)		74,260		2.59 yrs.
	$	519,195	$	(381,861	)	$	137,334

	December 31, 2020
								Weighted-
						Net		Average
	Gross		Accumulated			Carrying		Amortization
	Amount		Amortization			Amount		Period
Supply chain development	$	395,248	$	(291,937	)	$	103,311		1.05 yrs.
Patents		70,435		(29,901	)		40,534		2.45 yrs.
	$	465,683	$	(321,838	)	$	143,845

June 30, 2022
	Cost Basis		Unrealized Losses			Transferred to Cash			Total
Bonds	$	12,178,027	$	(35,580	)	$	(1,993,514	)	$	10,148,933
US Treasury securities		7,821,973		-			-			7,821,973
	$	20,000,000	$	(35,580	)	$	(1,993,514	)	$	17,970,906

Number of Series H Preferred Stock outstanding as of June 30, 2021		8

Number of Series H Preferred Stock outstanding as of June 30, 2022				8
Multiplied by the stated value	$	154.00	$	154
Equals the gross stated value	$	1,232	$	1,232
Divided by the conversion price	$	184.80	$	184.8
Equals the convertible shares of Company Common Stock		7		7
Multiplied by the fair market value of Company Common Stock as of June 30, 2021	$	4.88
Multiplied by the fair market value of Company Common Stock as of June 30, 2022			$	0.84
Equals the payment	$	34	$	6


Number of Series H-3 Preferred Stock outstanding as of June 30, 2022		1,234
Multiplied by the stated value	$	138.00
Equals the gross stated value	$	170,292
Divided by the conversion price	$	165.6
Equals the convertible shares of Company Common Stock		1,028
Multiplied by the fair market value of Company Common Stock as of June 30, 2022	$	0.84
Equals the payment	$	864

	As of September 25, 2020
Dividend		-	%
Risk Free Rate		0.30	%
Exercise Price	$	2.90
Strike Price	$	3.19
Term		5.00
Volatility		102	%

	Shares Underlying Warrants			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in years)		Shares Underlying Warrants			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in years)
Outstanding at December 31, 2020		3,501,014		$	8.03		2.87
Outstanding at December 31, 2021									6,108,823		$	7.37		2.56
Granted		3,873,711		$	7.24				-			-
Exercised		(13,642	)	$	7.33				-			-
Expired		(1,252,260	)	$	8.80				(2,800	)		165.60
Outstanding at June 30, 2021		6,108,823		$	7.37		2.82
Outstanding at June 30, 2022									6,106,023		$	7.30		1.82

	Number of Shares			Weighted Average Exercise Price			Contractual Life (Years)
Outstanding at December 31, 2020		1,920,269		$	4.40			8.66
Exercised		(469,576	)		(2.25	)
Forfeitures		(2,500	)		(2.52	)
Outstanding at June 30, 2021		1,448,193		$	4.98			8.46

	Number of Shares			Weighted Average Exercise Price		Contractual Life (Years)
Outstanding at December 31, 2021		1,338,675		$	5.14		8.26
Granted		173,500			0.97
Forfeitures		(723,629	)		3.14
Outstanding at June 30, 2022		788,546		$	6.08		8.13

	For the six months ended June 30, 2022
Company Common Stock as of Grant Date May 6, 2022		0.97
Time to Maturity		6
Dividend		-
Annual risk-free interest rate		2.04	%
Annualized volatility		130.23	%
Black-Scholes Value		0.87

	Number of Shares			Weighted Average Grant Price
Outstanding at December 31, 2020		1,072,503		$	5.30
Granted		172,000			7.66
Vested		(681,724	)		4.85
Forfeitures		(42,612	)		3.17
Outstanding at June 30, 2021		520,167		$	6.84

	Number of Shares			Weighted Average Grant Price
Outstanding at December 31, 2021		450,000		$	2.48
Granted		442,248			1.29
Vested		(110,562	)		1.29
Outstanding at June 30, 2022		781,686		$	1.98

	~~Date~~
~~Weighted average remaining lease term (in years) – operating lease~~	~~5.75~~
~~Weighted average discount rate – operating lease~~	~~10.41~~	%

		June 30, 2021		June 30, 2020
	For the six months ended
	June 30, 2021		June 30, 2020
Operating cash flows for operating leases	$	67,009	$	30,286
Supplemental non-cash amounts of lease liabilities arising from obtaining right of use assets	$	120,440	$	1,210,680

		1
As of June 30, 2021	Operating Leases
2021, remaining	$	183,537
2022		306,691
2023		247,533
2024		254,277
2025		261,223
2026 and thereafter		313,307
Total minimum lease payments		1,566,568
Less effects of discounting		(387,204	)
Present value of future minimum lease payments	$	1,179,364

●	we may be acquired by a third ~~party based on preexisting agreements;~~party;

●	we have a history of losses and have never been profitable, and we expect to incur additional losses in the future and may never be profitable;

●	if our Master Procurement Agreement with Club Car is terminated, we will need to identify new strategic channel partners to support the sales of our vehicles;

●	if we lose our exclusive license to manufacture the AYRO 411x model in North America, Cenntro could sell identical or similar products through other companies or directly to our customers;

●	we may be unable to replace lost manufacturing capacity on a timely and cost-effective basis, which could adversely impact our operations and ability to meet delivery timelines;

●	we may experience delays in the development and introduction of new products;

●	the market for our products is developing and may not develop as expected;

●	we are currently evaluating our product development strategy, which may result in significant changes and have a material impact on our business, results of operations and financial condition;

●	our business is subject to general economic and market conditions, including trade wars and tariffs;

●	our business, results of operations and financial condition may be adversely impacted by public health epidemics, including the ~~recent~~ COVID-19 outbreak;

●	if disruptions in our transportation network continue to occur or our shipping costs continue to increase, we may be unable to sell or timely deliver our products, and our gross margin could decrease;

●	our limited operating history makes evaluating our business and future prospects difficult and may increase the risk of any investment in our securities;

●	if we ~~may experience lower-than-anticipated market acceptance of~~are unable to effectively implement or manage our ~~vehicles;~~growth strategy, our operating results and financial condition could be materially and adversely affected;

●	developments in alternative technologies or improvements in the internal combustion engine may have a materially adverse effect on the demand for our electric vehicles;

●	the markets in which we operate are highly competitive, and we may not be successful in competing in these industries;

●	a significant portion of our revenues ~~are~~is derived from a single customer;

●	~~we rely~~our future growth depends on ~~and intend~~customers’ willingness to ~~continue to rely on a single third-party supplier and manufacturer located in the People’s Republic of China for the sub-assemblies in a semi-knocked-down state for our current~~adopt electric vehicles;

●	if we are unable to manage our growth and expand our operations successfully, our business and operating results will be harmed, and our reputation may be damaged;

●	unanticipated changes in industry standards could render our vehicles incompatible with such standards and adversely affect our business;

●	our future success depends on our ability to identify additional market opportunities and develop and successfully introduce new and enhanced products that address such markets and meet the needs of customers in such markets;

●	unforeseen or recurring operational problems at ours or our prime supplier’s facilities, or a catastrophic loss of ours or our prime supplier’s manufacturing facilities, may cause significant lost or delayed production and adversely affect our results of operations;

●	we may become subject to product liability claims, which could harm our financial condition and liquidity if we are not able to successfully defend or insure against such claims;

●	we currently have limited electric vehicles marketing and sales experience, and if we are unable to establish sales and marketing capabilities or enter into dealer agreements to market and sell our vehicles, we may be unable to generate any revenue;

●	the range of our electric vehicles on a single charge declines over time, which may negatively influence potential customers’ decisions whether to purchase our vehicles;

●	increases in costs, disruption of supply or shortage of raw materials, in particular lithium-ion battery cells, chipsets and displays, could harm our business;

●	customer financing and insuring our vehicles may prove difficult because retail lenders are unfamiliar with our vehicles and our vehicles have a limited loss history determining residual values and within the insurance industry;

●	our electric vehicles make use of lithium-ion battery cells, which, if not appropriately managed and controlled, have occasionally been observed to catch fire or vent smoke and flames;

●	our business may be adversely affected by labor and union activities;

●	we rely on our dealers for the service of our vehicles and have limited experience servicing our vehicles, and if we are unable to address the service requirements of our future customers, our business will be materially and adversely affected;

●	if we fail to deliver vehicles and accessories to market as scheduled, our business will be harmed;

●	we may be required to raise additional capital to fund our operations, and such capital raising may be costly or difficult to obtain and could dilute our stockholders’ ownership interests, and our long-term capital requirements are subject to numerous risks;

●	increased safety, emissions, fuel economy or other regulations may result in higher costs, cash expenditures, and/or sales restrictions;

●	we may fail to comply with evolving environmental and safety laws and regulations;

●	changes in regulations could render our vehicles incompatible with federal, state or local regulations, or use cases.

●	we have identified a material weakness in our internal control over financial reporting, and if we are unable to remediate the material weakness, or if we experience additional material weaknesses in the future, our business may be harmed;

●	if we are unable to adequately protect our proprietary designs and intellectual property rights, our competitive position could be harmed;

●	we may need to obtain rights to other intellectual property in the future, and if we fail to obtain licenses we need or fail to comply with our obligations in existing agreements under which we have licensed intellectual property and other rights from third parties, we could lose our ability to manufacture our vehicles;

●	our proprietary designs are susceptible to reverse engineering by our competitors;

●	if we are unable to protect the confidentiality of our trade secrets or know-how, such proprietary information may be used by others to compete against us;

●	~~should we begin transacting business in other currencies,~~ we are subject to exposure from changes in the exchange rates of local currencies; and

●	we are subject to governmental export and import controls that could impair our ability to compete in international ~~market~~markets due to licensing requirements and subject us to liability if we are not in compliance with applicable laws.

	For the three months ended June 30,									For the Three Months Ended June 30,
	2021			2020			Change			2022			2021			Change
Revenue	$	522,067		$	285,927		$	236,140		$	981,560		$	522,067		$	459,493
Cost of goods sold		430,478			205,637			224,841			2,827,512			430,478			2,397,034
Gross profit		91,589			80,290			11,299
Gross profit (loss)											(1,845,952	)		91,589			(1,937,541	)
Operating expenses:
Research and development		3,042,117			180,605			2,861,512			1,046,797			3,042,117			(1,995,320	)
Sales and marketing		668,838			239,065			429,773			337,226			668,838			(331,612	)
General and administrative		4,061,681			714,679			3,347,002			2,741,700			4,061,681			(1,319,981	)
Total operating expenses		7,772,636			1,134,349			6,638,287			4,125,723			7,772,636			(3,646,913	)
Loss from operations		(7,681,047	)		(1,054,059	)		(6,626,988	)		(5,971,675	)		(7,681,048	)		1,709,373
Other income and expense:
Other income and (expense):
Other income, net		18,419			3			18,416			10,706			18,419			(7,713	)
Interest expense		(1,121	)		(123,576	)		122,455			-			(1,121	)		1,121
Loss on extinguishment of debt		-			(353,225	)		353,225
Unrealized loss on marketable securities											(13,479	)		-			(13,479	)
Net loss	$	(7,663,749	)	$	(1,530,857	)	$	(6,132,892	)	$	(5,974,448	)	$	(7,663,749	)	$	1,689,301

	For the six months ended June 30,									For the Six Months Ended June 30,
	2021			2020			Change			2022			2021			Change
Revenue	$	1,310,936		$	432,743		$	878,193		$	2,008,405		$	1,310,936		$	697,469
Cost of goods sold		1,074,981			318,792			756,189			4,004,657			1,074,981			2,929,676
Gross profit		235,955			113,951			122,004
Gross profit (loss)											(1,996,252	)		235,955			(2,232,207	)
Operating expenses:
Research and development		4,969,678			335,304			4,634,374			1,912,204			4,969,678			(3,057,475	)
Sales and marketing		1,227,242			558,519			668,723			1,182,042			1,227,242			(45,200	)
General and administrative		7,362,994			1,963,730			5,399,264			5,446,627			7,362,994			(1,916,367	)
Total operating expenses		13,559,914			2,857,553			10,702,361			8,540,873			13,559,914			(5,019,041	)
Loss from operations		(13,323,959	)		(2,743,602	)		(10,580,357	)		(10,537,125	)		(13,323,959	)		2,786,834
Other income and expense:
Other income and (expense):
Other income, net		28,689			20			28,669			19,597			28,689			(9,092	)
Interest expense		(2,312	)		(229,202	)		226,890			-			(2,312	)		2,312
Loss on extinguishment of debt		-			(353,225	)		353,225
Unrealized loss on marketable securities											(35,580	)		-			(35,580	)
Net loss	$	(13,297,582	)	$	(3,326,009	)	$	(9,971,573	)	$	(10,553,108	)	$	(13,297,582	)	$	2,744,474

●	unexpected increases in manufacturing costs;
●	interruptions in shipments if a third-party contract manufacturing partner is unable to complete production in a timely manner;
●	reduced control over delivery schedules;
●	reduced control over manufacturing levels and our ability to meet minimum volume commitments to our customers;
●	reduced control over manufacturing yield; and
●	reduced control over manufacturing capacity.

~~Exhibit~~ ~~No.~~		~~Description~~
~~2.1~~		Agreement and Plan of Merger and Reorganization by and among DropCar, Inc., ABC Merger Sub, Inc. and AYRO, Inc. dated December 19, 2019 (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on December 20, 2019)

~~2.2~~		Asset Purchase Agreement, by and among DropCar, Inc., DropCar Operating Company, Inc., DC Partners Acquisition, LLC, Spencer Richardson and David Newman, dated December 19, 2019 (incorporated by reference to Exhibit 2.5 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on December 20, 2019)

~~2.3~~		Amendment to Asset Purchase Agreement, by and among DropCar, Inc., DropCar Operating Company, Inc., DC Partners Acquisition, LLC, Spencer Richardson and David Newman, dated May 28, 2020 (incorporated by reference to Exhibit 2.3 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on May 29, 2020)

3.1		Certificate of Amendment to the Certificate of Designations, Preferences and Rights of Series H-4 Convertible Preferred Stock (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on May 29, 2020)

3.2		Amended and Restated Certificate of Incorporation, effective May 28, 2020 (incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on May 29, 2020)

3.3		Certificate of Amendment to Amended and Restated Certificate of Incorporation, effective May 28, 2020 (incorporated by reference to Exhibit 3.3 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on May 29, 2020)

3.4		Amended and Restated Bylaws, effective May 28, 2020 (incorporated by reference to Exhibit 3.4 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on May 29, 2020)

3.5		First Amendment to the Amended and Restated Bylaws (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on July 8, 2020)

3.6	Second Amendment to the Amended and Restated Bylaws (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on October 19, 2021)