UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, ~~2022~~2023

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___________ to __________

Commission file number: 001-34643

AYRO, INC.

(Exact name of registrant as specified in its charter)

Delaware

98-0204758

(State or other jurisdiction of

(I.R.S. Employer

incorporation or organization)

~~(I.R.S. Employer~~

Identification No.)

900 E. Old Settlers Boulevard, Suite 100

Round Rock, Texas

78664

(Address of principal executive offices)

(Zip Code)

(512) 994-4917

(Registrant’s telephone number, including area code)

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

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated ~~filer”,~~filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☐

Non-accelerated filer	☒	Smaller reporting company	☒

		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of November ~~03, 2022,~~17, 2023, the registrant had ~~37,020,518~~4,890,137 shares of common stock outstanding.

AYRO, Inc.

Quarter Ended September 30, ~~2022~~2023

Table of Contents

		PAGE
PART I	FINANCIAL INFORMATION	F-1

ITEM 1.	Financial Statements (Unaudited)	F-1
	Condensed Consolidated Balance Sheets as of September 30, ~~2022~~2023, and December 31, ~~2021~~2022	F-1
	Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, ~~2022~~2023, and ~~2021~~2022	F-2
	Condensed Consolidated Statements of Changes in Mezzanine Equity and Stockholders’ Equity for the Three and Nine Months Ended September 30, ~~2022~~2023, and ~~2021~~2022	F-3
	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, ~~2022~~2023, and ~~2021~~2022	F-4
	Notes to the Condensed Consolidated Financial Statements (Unaudited)	F-5
ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1
ITEM 3.	Quantitative and Qualitative Disclosure About Market Risk	1416
ITEM 4.	Controls and Procedures	1416

PART II	OTHER INFORMATION	1517

ITEM 1.	Legal Proceedings	1517
ITEM 1A.	Risk Factors	1517
ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	1518
ITEM 3.	Defaults Upon Senior Securities	1518
ITEM 4.	Mine Safety Disclosures	1518
ITEM 5.	Other Information	1518
ITEM 6.	Exhibits	1619

SIGNATURES		1821

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)

AYRO, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE ~~SHEETS~~SHEET

(UNAUDITED)

	September 30,			December 31,
	2023			2022
ASSETS
Current assets:
Cash and cash equivalents	$	3,287,902		$	39,096,562
Restricted Cash		10,000,000			-
Marketable securities		34,627,782			9,848,804
Accounts receivable, net		143,990			510,071
Inventory, net		4,346,610			970,381
Prepaid expenses and other current assets		3,085,303			1,478,845
Total current assets		55,491,588			51,904,663

Property and equipment, net		3,499,299			2,192,337
Operating lease – right-of-use asset		716,957			819,401
Deposits and other assets		90,642			73,683
Total assets	$	59,798,486		$	54,990,084

LIABILITIES, MEZZANINE EQUITY AND STOCKHOLDERS’ EQUITY

Current liabilities:
Accounts payable	$	826,924		$	1,107,215
Accrued expenses		992,966			964,937
Current portion lease obligation – operating lease		192,170			165,767
Total current liabilities		2,012,060			2,237,919

Derivative liability		1,931,000			-
Warrant liability		20,065,440			-
Lease obligation - operating lease, net of current portion		552,728			693,776
Total liabilities		24,561,228			2,931,695

Commitments and contingencies		-			-
MEZZANINE EQUITY
Series H-7 Convertible redeemable preferred stock, ($0.0001 par value and $1,000 face value, 22,000 shares authorized; 22,000 shares issued and outstanding at September 30, 2023, and 0 shares at December 31, 2022, respectively). Liquidation preference of $22,244,000 as of September 30, 2023		7,925,309			-

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 September 30, 2023, and December 31, 2022, respectively)		-			-
Convertible Preferred Stock Series H-3, ($0.0001 par value; authorized – 8,461 shares; issued and outstanding – 1,234 shares as of September 30, 2023, and December 31, 2022, respectively)		-			-
Convertible Preferred Stock Series H-6, ($0.0001 par value; authorized – 50,000 shares; issued and outstanding – 50 shares as of September 30, 2023, and December 31, 2022, respectively)		-			-
Preferred stock, value		-			-
Common Stock, $0.0001 par value; authorized – 200,000,000 shares; issued and outstanding – 4,890,137 and 4,655,205 as of September 30, 2023 and December 31, 2022, respectively)		489			466
Additional paid-in capital		132,549,618			133,227,507
Accumulated deficit		(105,238,158	)		(81,169,584	)
Total stockholders’ equity		27,311,949			52,058,389
Total liabilities, mezzanine equity and stockholders’ equity	$	59,798,486		$	54,990,084

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

F-1

AYRO, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

September 30, December 31,
2022 2021
ASSETS
Current assets:
Cash $ 39,428,850 $ 69,160,466
Marketable securities 15,790,595 -
Accounts receivable, net 456,372 969,429
Inventory 1,479,501 3,744,037
Prepaid expenses and other current assets 2,327,563 2,276,178
Total current assets 59,482,881 76,150,110

Property and equipment, net 1,663,385 835,160
Intangible assets, net 99,023 88,322
Operating lease – right-of-use asset 857,576 1,012,884
Deposits and other assets 22,491 41,288
Total assets $ 62,125,356 $ 78,127,764

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:
Accounts payable $ 1,163,398 $ 647,050
Accrued expenses 1,622,149 2,990,513
Current portion lease obligation – operating lease 159,910 206,426
Total current liabilities 2,945,457 3,843,989
Lease obligation - operating lease, net of current portion 737,124 859,543
Total liabilities 3,682,581 4,703,532

Stockholders’ equity:
Preferred Stock, (authorized – 20,000,000 shares) - -
Convertible Preferred Stock Series H, ($0.0001 par value; authorized – 8,500 shares; issued and outstanding – 8 shares as of September 30, 2022 and December 31, 2021, respectively) - -
Convertible Preferred Stock Series H-3, ($.0001 par value; authorized – 8,461 shares; issued and outstanding – 1,234 as of September 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 September 30, 2022 and December 31, 2021, respectively) - -
Preferred stock, value - -
Common Stock, ($0.0001 par value; authorized – 100,000,000 shares; issued and outstanding – 37,131,380 and 36,866,975 as of September 30, 2022 and December 31, 2021, respectively) 3,713 3,687
Additional paid-in capital 132,907,975 131,654,776
Accumulated deficit (74,468,913 ) (58,234,231 )
Total stockholders’ equity 58,442,775 73,424,232
Total liabilities and stockholders’ equity $ 62,125,356 $ 78,127,764

	2023			2022			2023			2022
	Three Months Ended September 30,						Nine Months Ended September 30,
	2023			2022			2023			2022
Revenue	$	88,395		$	373,186		$	341,023		$	2,381,592
Cost of goods sold		231,837			955,003			783,656			4,959,660
Gross loss		(143,441	)		(581,817	)		(442,633	)		(2,578,068	)

Operating expenses:
Research and development		1,335,167			1,837,510			5,870,555			3,749,714
Sales and marketing		390,684			384,748			1,529,637			1,566,790
General and administrative		4,370,684			3,000,156			10,461,733			8,446,785
Total operating expenses		6,096,535			5,222,414			17,861,925			13,763,289

Loss from operations		(6,239,976	)		(5,804,231	)		(18,304,558	)		(16,341,357	)

Other income(expense):
Interest Income		35,557			51,792			370,387			71,389
Change in FV-Warrant Liability		(10,095,960	)		-			(10,095,960	)		-
Change in FV-Derivative Liability		3,216,000			-			3,216,000			-
Unrealized gain (loss) on marketable securities		403,996			(32,135	)		602,211			(75,204	)
Realized gain on marketable securities		90,812			103,000			143,344			110,490
Other income (expense), net		(6,349,596	)		122,657			(5,764,018	)		106,675

Net loss		(12,589,572	)		(5,681,574	)		(24,068,576	)		(16,234,682	)

Preferred stock dividends		(244,000	)		-			(244,000	)		-
Accretion of discounts to redemption value of H-7 convertible preferred stock		(1,165,635	)		-			(1,165,635	)		-
Deemed Dividend (Series H-5 warrants)		(199,000	)		-			(199,000	)		-

Net loss attributable to Common Stockholders	$	(14,198,207	)	$	(5,681,574	)	$	(25,677,211	)	$	(16,234,682	)

Net loss per share, basic and diluted	$	(2.99	)	$	(1.23	)	$	(5.47	)	$	(3.51	)

Basic and diluted weighted average Common Stock outstanding		4,744,229			4,636,829			4,698,104			4,624,437

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

~~F-1~~

~~AYRO, INC. AND SUBSIDIARIES~~

~~CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS~~

~~(UNAUDITED)~~

2022 2021 2022 2021
Three Months Ended Nine Months Ended
September 30, September 30,
2022 2021 2022 2021
Revenue $ 373,186 $ 559,370 $ 2,381,592 $ 1,870,306
Cost of goods sold 955,003 955,466 4,959,660 2,030,447
Gross loss (581,817 ) (396,096 ) (2,578,068 ) (160,141 )

Operating expenses:
Research and development 1,837,510 4,165,732 3,749,714 9,135,410
Sales and marketing 384,748 646,713 1,566,790 1,873,955
General and administrative 3,000,156 6,805,788 8,446,785 14,168,782
Total operating expenses 5,222,414 11,618,233 13,763,289 25,178,147

Loss from operations (5,804,231 ) (12,014,329 ) (16,341,357 ) (25,338,288 )

Other income (expense):
Other income, net 51,792 12,254 71,389 40,943
Interest expense - - - (2,312 )
Realized gain on marketable securities 103,000 - 110,490 -
Unrealized loss on marketable securities (32,135 ) - (75,204 ) -
Other income (expense), net 122,657 12,254 106,675 38,631

Net loss $ (5,681,574 ) $ (12,002,075 ) $ (16,234,682 ) $ (25,299,657 )

Net loss per share, basic and diluted $ (0.15 ) $ (0.33 ) $ (0.44 ) $ (0.73 )

Basic and diluted weighted average Common Stock outstanding 37,094,631 36,312,478 36,995,497 34,615,858

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

F-2

AYRO, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN MEZZANINE EQUITY AND STOCKHOLDERS’ EQUITY

~~(UNAUDITED)~~Three and Nine Months Ended September 30, 2023

Shares Amount Shares Amount Shares Amount Shares Amount Capital (Deficit) Total
Three and Nine Months Ended September 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 - 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

Stock Based Compensation - - - 332,181 332,181
Vesting of Restricted Stock 110,862 11 (11 ) -
Net Loss - - - - - - (5,681,574 ) (5,681,574 )
Balance, September 30, 2022 8 $ - 1,234 $ - 50 $ - 37,131,380 $ 3,713 $ 132,907,975 $ (74,468,913 ) $ 58,442,775

Three and Nine Months Ended September 30, 2021
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, 2020 8 $ - 1,234 $ - 50 $ - 27,088,584 $ 2,709 $ 64,509,724 $ (25,154,817 ) $ 39,357,616
Beginning balance 8 $ - 1,234 $ - 50 $ - 27,088,584 $ 2,709 $ 64,509,724 $ (25,154,817 ) $ 39,357,616

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 ) -
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
Stock Based Compensation 1,012,121 1,012,121
Exercise of Options 85,428 9 282,074 282,083

Restricted stock vesting 42,999 4 (4 ) -
Net loss - - - - - - (12,002,075 ) (12,002,075 )
Balance, September 30, 2021 8 $ - 1,234 $ - 50 $ - 36,432,789 $ 3,643 $ 128,777,533 $ (50,454,474 ) $ 78,326,702
Ending balance 8 $ - 1,234 $ - 50 $ - 36,432,789 $ 3,643 $ 128,777,533 $ (50,454,474 ) $ 78,326,702


	Series H-7				Series H				Series H-3				Series H-6								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, January 1, 2023		-	$	-		8	$	-		1,234	$	-		50	$	-		4,655,205	$	466	$	133,227,507		$	(81,169,584	)	$	52,058,389
Stock based compensation				-				-				-				-						20,116						20,116
Vested Restricted Stock		-		-		-		-		-		-		-		-		13,858		1		246,624						246,625
Net Loss		-		-		-		-		-		-		-		-									(5,475,769	)		(5,475,769	)
Balance, March 31, 2023		-		-		8		-		1,234		-		50		-		4,669,063		467		133,494,247			(86,645,353	)		46,849,361
Stock based compensation				-				-				-				-						11,417						11,417
Vested Restricted Stock				-				-				-				-		23,568		2		230,711						230,713
Net Loss				-				-				-				-									(6,003,233	)		(6,003,233	)
Balance, June 30, 2023		-		-		8		-		1,234		-		50		-		4,692,632		469		133,736,375			(92,648,586	)		41,088,258
Sale of preferred shares								-				-				-
Issuance of convertible preferred stock, net of discounts and transaction costs		22,000		6,515,674																								-
Issuance of rounded shares as a result of the reverse stock split.																		173,530		17		(17	)					-
Dividends (Accrued Series H-7 Preferred)				244,000																					(244,000	)		(244,000	)
Deemed Dividend (Series H-5 warrants)																						-						-
Accretion of discounts to redemption value of H-7 convertible preferred stock				1,165,635																					(1,165,635	)		(1,165,635	)
Stock based compensation																						15,165						15,165
Vested Restricted Stock																		23,975		3		207,730						207,733
Net Loss				-				-				-				-									(12,589,572	)		(12,589,572	)
Balance, September 30, 2023		22,000	$	7,925,309		8	$	-		1,234	$	-		50	$	-		4,890,137	$	489	$	132,549,618		$	(105,238,158	)	$	27,311,949

Three and Nine Months Ended September 30, 2022

	Series H-7				Series H				Series H-3				Series H-6								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, January 1, 2022		-	$	-		8	$	-		1,234	$	-		50	$	-		4,608,370	$	461	$	131,658,002		$	(58,234,231	)	$	73,424,232
Stock based compensation				-				-				-				-						288,110						288,110
Vested Restricted Stock				-				-				-				-		5,375		1		329,380						329,381
Net Loss		-		-		-		-		-		-		-		-									(4,578,660	)		(4,578,660	)
Balance at March 31, 2022		-		-		8		-		1,234		-		50		-		4,613,745		462		132,275,492			(62,812,891	)		69,463,063
Stock based compensation				-				-				-				-						303,553						303,553
Vested Restricted Stock				-				-				-				-		13,820		1		(1	)					-
Net Loss		-		-		-		-				-				-									(5,974,448	)		(5,974,448	)
Balance, June 30, 2022		-		-		8		-		1,234		-		50		-		4,627,565		463		132,579,044			(68,787,339	)		63,792,168
Balance, value		-		-		8		-		1,234		-		50		-		4,627,565		463		132,579,044			(68,787,339	)		63,792,168
Stock based compensation				-				-				-				-						332,181						332,181
Vested Restricted Stock				-				-				-				-		13,858		1		(1	)					-
Net Loss				-				-		-		-				-									(5,681,574	)		(5,681,574	)
Balance, September 30, 2022		-	$	-		8	$	-		1,234	$	-		50	$	-		4,641,423	$	464	$	132,911,224		$	(74,468,913	)	$	58,442,775
Balance, value		-	$	-		8	$	-		1,234	$	-		50	$	-		4,641,423	$	464	$	132,911,224		$	(74,468,913	)	$	58,442,775

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

F-3

AYRO, INC. AND SUBSIDIARIES

CONSOLIDATED ~~STATEMENTS~~STATEMENT OF CASH FLOWS

(UNAUDITED)

2022 2021
Nine Months Ended
September 30,
2022 2021
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (16,234,682 ) $ (25,299,657 )
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 442,890 384,157
Stock-based compensation 923,844 6,997,986
Amortization of right-of-use asset 155,308 149,376
Bad debt expense 2,136 92,176
Realized gain on marketable securities (110,490 )
Unrealized loss on marketable securities 75,204 -
Impairment of inventory and prepaid 2,351,947 -
Change in operating assets and liabilities:
Accounts receivable 510,922 (66,550 )
Inventory 462,025 (1,568,687 )
Prepaid expenses and other current assets (1,430,565 ) (841,465 )
Deposits 18,798 (18,797 )
Accounts payable 516,347 420,420
Accrued expenses (473,953 ) 1,168,858
Contract liability - (24,000 )
Lease obligations - operating leases (168,935 ) (117,474 )
Net cash used in operating activities (12,959,204 ) (18,723,657 )

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (970,557 ) (512,298 )
Purchase of marketable securities, net (15,755,309 ) -
Purchase of intangible assets (46,546 ) (57,227 )
Net cash used in investing activities (16,772,412 ) (569,525 )

CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of debt - (21,609 )
Proceeds from exercise of warrants, net of fees - 100,000
Proceeds from exercise of stock options - 1,506,999
Proceeds from issuance of Common Stock, net of fees and expenses - 58,269,829
Net cash provided by financing activities - 59,855,219

Net change in cash (29,731,616 ) 40,562,037

Cash, beginning of year 69,160,466 36,537,097

Cash, end of quarter $ 39,428,850 $ 77,099,134

Supplemental disclosure of cash and non-cash transactions:
Cash paid for interest $ - $ 1,971
Restricted Stock issued, previously accrued $ 329,381 $ -
Accrued Fixed Assets $ 193,053
Supplemental non-cash amounts of lease liabilities arising from obtaining right of use assets $ - $ 120,440

	2023			2022
	Nine Months Ended
	September 30,
	2023			2022
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(24,068,576	)	$	(16,234,682	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		781,852			442,890
Stock-based compensation		731,768			923,844
Change in FV-Derivative Liability		(3,216,000	)		-
Change in FV-Warrant Liability		10,095,960			-
Amortization of right-of-use asset		123,885			155,308
Bad debt expense		292,010			2,136
Unrealized gain on marketable securities		(602,211	)		75,204
Realized gain on marketable securities		(143,344	)		(110,490	)
Impairment of inventory and prepaid		-			2,351,947
Change in operating assets and liabilities:
Accounts receivable		74,072			510,922
Inventory		(3,376,229	)		462,025
Prepaid expenses and other current assets		(1,606,457	)		(1,430,565	)
Deposits and other assets		(500	)		18,798
Accounts payable		(280,291	)		516,347
Accrued expenses		28,029			(473,953	)
Lease obligations - operating leases		(136,086	)		(168,935	)
Net cash used in operating activities		(21,302,119	)		(12,959,204	)

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment		(2,076,070	)		(970,557	)
Change in marketable securities		(24,033,422	)		(15,755,310	)
Purchase of intangible assets		(29,204	)		(46,546	)
Net cash used in by investing activities		(26,138,696	)		(16,772,413	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from private placement of preferred stock, net of transaction costs		21,632,156			-
Net cash provided by financing activities		21,632,156			-

Net change in cash, cash equivalents and restricted cash		(25,808,660	)		(29,731,616	)

Cash, cash equivalents and restricted cash, beginning of period		39,096,562			69,160,466

Cash, cash equivalents and restricted cash, end of period	$	13,287,902		$	39,428,850

Supplemental disclosure of cash and non-cash transactions:
Accrual of Series H-7 Convertible Preferred Stock Dividends	$	244,000		$	-
Restricted Stock issued previously accrued	$	-		$	329,381
Initial fair value of warrant liability	$	9,969,480		$	-
Initial fair value of derivative liability	$	5,147,000		$	-
Deemed Dividend H-5 Warrants	$	199,000		$	-
Accretion of discounts to redemption value of H-7 convertible preferred stock	$	1,165,635		$	-
Accrued fixed assets	$	-		$	193,053

Supplemental disclosure of restricted cash:
Cash and cash equivalents	$	3,287,902		$	39,428,850
Restricted Cash	$	10,000,000		$	-
Total cash, cash equivalents and restricted cash	$	13,287,902		$	39,428,850

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

F-4

AYRO, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

NOTE 1. ORGANIZATION AND NATURE OF OPERATIONS

AYRO, Inc. (“AYRO” or the “Company”), a Delaware corporation formerly known as DropCar, Inc. (“DropCar”), a corporation headquartered outside Austin, Texas, is the merger successor ~~(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 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~~wholly owned subsidiaries, are principally engaged in manufacturing and sales of ~~environmentally-conscious,~~environmentally conscious, minimal-footprint electric vehicles. The all-electric vehicles are typically sold both directly to customers and to dealers in the United States.

Reverse Stock Split

On September 15, 2023, the Company effected a one-for-eight reverse stock split of the Company’s common stock (the “Reverse Stock Split”). All share and per share information in this quarterly report have been retroactively adjusted to reflect the Reverse Stock Split.

Strategic Review

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

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

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

~~Merger~~

On May 28, 2020, pursuant to the previously announced Agreement and Plan of Merger, dated December 19, 2019, 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 The Company commenced low-rate initial production of the ~~Company (“Merger Sub”),~~Vanish in the second quarter of 2023 and ~~AYRO Operating Company, Inc., a Delaware corporation previously known as AYRO, Inc. (“AYRO Operating”), Merger Sub was merged with~~commenced initial sales and ~~into AYRO Operating, with AYRO Operating continuing after the merger as the surviving entity and a wholly owned subsidiary~~delivery of the ~~Company (the “Merger”).~~Vanish in the third quarter of 2023.

F-5

NOTE 2. LIQUIDITY AND OTHER UNCERTAINTIES

Liquidity and Other Uncertainties

The unaudited condensed consolidated financial statements have been prepared in conformity with generally accepted accounting principles in the United States (“GAAP”), which contemplates continuation of the Company as a going concern. The Company is subject to a number of risks similar to those of earlier stage commercial companies, including dependence on key individuals and products, the difficulties inherent in the development of a commercial market, the potential need to obtain additional capital, competition from larger companies, other technology companies and other technologies. The Company has a limited operating history and the sales and income potential of its business and market are unproven. The Company incurred net losses of $~~16,234,682~~ 24,068,576for the nine months ended September 30, ~~2022,~~2023, and negative cash flows from operations of $~~12,959,204~~ 21,302,119for the nine months ended September 30, ~~2022. At~~2023. On September 30, ~~2022,~~2023, the Company had cash ~~balances~~and cash equivalents totaling $~~39,428,850~~ 3,287,902~~and~~ marketable securities of $~~15,790,595~~34,627,782 and restricted cash of $10,000,000. In addition, ~~as a result of the net losses incurred~~overall working capital ~~has decreased~~increased by $~~15,768,697~~ 3,812,783during the nine months ended September 30, ~~2022.~~2023. Management believes that the existing cash, atcash equivalents and marketable securities as of September 30, ~~2022~~2023, 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~~On August 7, 2023, the ~~World Health Organization declared the spread~~Company entered into a Securities Purchase Agreement (the “Purchase Agreement”), pursuant to which it agreed to sell to certain existing investors (the “Investors”) in a private placement (the “Private Placement”) (i) an aggregate of 22,000 shares of the ~~transmissible~~Company’s newly designated Series H-7 convertible preferred stock, par value $0.0001 per share, with a stated value of $1,000 per share (“Series H-7 Preferred Shares”), and ~~pathogenic coronavirus a global pandemic, there have been business slowdowns and decreased demand~~(ii) warrants (the “Warrants”) initially exercisable for ~~AYRO products.~~up to an aggregate of 2,750,000 shares of common stock. The ~~outbreak~~Company raised gross proceeds of ~~such a communicable disease has resulted in a widespread health crisis~~$22 million from the sale, 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 2022, the measures taken by the governments of countries affected has adversely affected the Company’s business, financial condition, and results of operations.closed on August 10, 2023.

The certificate of designations for the Series H-7 Preferred Shares (the “Certificate of Designations”) contains certain restrictive provisions, including (i) a requirement to maintain unencumbered, unrestricted cash and cash equivalents on hand in an amount equal to (a) until December 31, 2023, at least $20,000,000 plus the net proceeds from the sale of the Series H-7 Preferred Shares pursuant to the Purchase Agreement, and (b) from January 1, 2024 and until an aggregate of eighty percent (80%) of the Series H-7 Preferred Shares have been converted into shares of common stock, at least $21,000,000, and (ii) a requirement to deposit an amount equal to $10,000,000 from the Private Placement proceeds into a newly established segregated deposit account of the Company ~~has historically relied on foreign suppliers, including Cenntro which has been its largest supplier,~~(“Segregated Cash”), and to use such Segregated Cash solely for ~~a number~~the purpose of ~~raw materials, instruments and technologies~~performing the Company’s monetary obligations to the holders of the Series H-7 Preferred Shares, provided, however, that the Company ~~purchases.~~may use the Segregated Cash for any purpose, including general corporate purposes, with the prior written consent of holders of at least 75% of the outstanding Series H-7 Preferred Shares. As of September 30, 2023, the Company was not in compliance with the restrictive provisions discussed above. The Company ~~intends~~has regained compliance subsequent to reduce its reliance on foreign suppliers by sourcing components for the Vanish 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.September 30, 2023.

~~There is currently a shortage~~The Purchase Agreement contains certain representations and warranties, covenants, and indemnities customary for similar transactions. The representations, warranties and covenants contained in the Purchase Agreement were made solely for the benefit of ~~shipping capacity worldwide,~~the parties to the Purchase Agreement and ~~as a result, receipt of imported products~~may be subject to limitations agreed upon by the contracting parties. Among other covenants, the Purchase Agreement requires the Company orto hold a meeting of 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 andstockholders no later than November 5, 2023, to seek approval under Nasdaq Stock Market Rule 5635(d) (the “Stockholder Approval”) for the issuance of shares of common stock at ~~ports~~prices below the “Minimum Price” (as defined in Rule 5635 of ~~entry are common,~~the Rules of the Nasdaq Stock Market) on the date of the Purchase Agreement pursuant to the terms of the Preferred Stock and the ~~Company expects labor unrest and its effects~~Warrants. Such Stockholder Approval was obtained at a Special Meeting held 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, 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.September 14, 2023.

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

F-6

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 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 and 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 lithium-ion cells. These risks include:

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

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

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

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

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

NOTE 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation and Principles of Consolidation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with ~~GAAP~~accounting principles generally accepted in the United States (“GAAP”) for interim financial reporting and ~~in conformity~~ with the instructions onto Form 10-Q and ~~Rule 8-03~~Article 10 of Regulation ~~S-X and~~S-X. In the ~~related rules and regulations~~opinion of management, 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 reflectincluded herein contain all adjustments ~~consisting~~necessary to present fairly the Company’s financial position and the results of its operations and cash flows for the interim periods presented. Such adjustments are of a normal recurring ~~accruals, which are, in the opinion of management, necessary for a fair presentation of such statements.~~nature. The results of operations for the three and nine months ended September 30, ~~2022, are~~2023, may not ~~necessarily~~be indicative of ~~the~~ results ~~that may be expected~~ for the ~~entire~~full year. These unaudited condensed consolidated financial statements should be read in conjunction with the ~~consolidated~~audited financial statements and the ~~accompanying~~ notes to those statements for the ~~fiscal~~ year ended December 31, ~~2021, which are~~2022, included in the Company’s Annual Report on Form 10-K filed with the SEC on March 23, ~~2022~~2023, as amended on May ~~2, 2022.~~1, 2023.

F-7

Use of Estimates

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

The Company’s most significant estimates include ~~allowance for doubtful accounts, valuation of inventory reserve, valuation of deferred tax asset allowance, valuation of long lived assets, sales warranties, and~~marketable securities, revenue recognition, the measurement of stock-based compensation ~~expenses.~~expenses, fair value measurements of warrant and derivative liabilities and accretion of preferred stock. Actual results could differ from these estimates.

Restricted Cash

As of September 30, 2023, cash of $10 million was restricted in accordance with the Certificate of Designations. See Note 2, above.

Marketable Securities

Marketable securities include investment in fixed income bonds and U.S. Treasury securities that are considered to be highly liquid and easily tradeable. The marketable securities are considered trading securities and are measured at fair value and are accounted for in accordance with ASC 320. The marketable securities are valued using inputs observable in active markets for identical securities and are therefore classified as Level 1 within the Company’s fair value hierarchy. The Company held $~~15,790,595~~34,627,782 and $9,848,804 in marketable securities as of September 30, ~~2022.~~2023, and December 31, 2022, respectively.

Revenue Recognition

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

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

Nature of goods and services

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

Product revenue

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

F-8

Shipping revenue

Amounts billed to customers related to shipping and handling are classified as shipping revenue. The Company has elected to recognize the cost for freight and shipping when control over vehicles has transferred to the customer as an operating expense. The Company has reported shipping expenses of $~~79,767~~15,148 and $~~98,464~~79,767 for the three months ended September 30, 2023, and 2022 and ~~2021~~$56,482 and $335,812 ~~and $208,139~~ for the nine months ended September 30, ~~2022~~2023, and ~~2021~~2022 respectively, included in ~~SG&A.~~General and Administrative Expenses.

~~F-8~~

Services and other revenue

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

Miscellaneous income

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

~~Warrants~~Derivative Financial Instruments

The Company evaluates all its financial instruments to determine if such instruments contain features that qualify as embedded derivatives. Embedded derivatives must be separately measured from the host contract if all the requirements for bifurcation are met. The assessment of the conditions surrounding the bifurcation of embedded derivatives depends on the nature of the host contract. Bifurcated embedded derivatives are recognized at fair value, with changes in fair value recognized in the statement of operations each period. Bifurcated embedded derivatives are classified with the related host contract in the Company’s balance sheet. These particular derivatives are assessed under ASC 480 and ~~Preferred Shares~~ASC 815.

Fair Value Measurements

In accordance with ASC 820 (Topic 820, Fair Value Measurements and Disclosures), the company uses a three-level hierarchy for fair value measurements of certain assets and liabilities for financial reporting purposes that distinguishes between market participant assumptions developed from market data obtained from outside sources (observable inputs) and our own assumptions about market participant assumptions developed from the best information available to us in the circumstances (unobservable inputs). The fair value hierarchy is divided into three levels based on the source of inputs as follows:

~~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.

	●	Level 1 – inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets;
	●	Level 2 – inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability other than quoted prices, either directly or indirectly including inputs in markets that are not considered to be active; and
	●	Level 3 – inputs to the valuation methodology are unobservable and significant to the fair value measurement.

F-9

Categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

Stock-Based Compensation

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

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

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

Basic and Diluted Loss Per Share

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

In accordance with ASC 260, warrants that are accounted for as liabilities which are potentially dilutive have not been included in diluted earnings per share as they would have been anti-dilutive during the three and nine months ended September 30, 2023.

~~F-9~~F-10

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

		2022		2021		2022		2021	2023		2022		2023		2022
	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021		2023		2022		2023		2022
Options to purchase common stock		785,422		1,362,765		785,422		1,362,765		38,696		98,178		38,696		98,178
Restricted stock unvested		770,824		493,000		770,824		493,000		116,293		96,353		116,293		96,353
Restricted stock vested – unissued		-		434,166		-		434,166
Warrants outstanding		6,106,023		6,108,823		6,106,023		6,108,823		11,605,759		763,253		11,605,759		763,253
Preferred stock outstanding		2,475		2,475		2,475		2,475		11,122,696		309		11,122,696		309
Total		7,664,744		8,401,229		7,664,744		8,401,229
Totals										22,883,444		958,093		22,883,444		958,093

Recent Accounting Pronouncements

In August 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2020-06, which reduces the number of accounting models for convertible instruments, amends diluted earnings per share calculations for convertible instruments and allows more contracts to qualify for equity classification. ASU 2020-06 was effective for interim and annual periods beginning after December 15, 2021. The Company adopted ASU 2020-06 as of January 1, 2023. The adoption did not result in a material change to these unaudited condensed consolidated financial statements.

Inflation Risk

The Company does not believe that inflation has had a material effect on its business, financial condition, or results of operations. If costs were to become subject to significant inflationary pressures, the Company may not be able to fully offset such higher costs through price increases. The Company’s inability or failure to do so could harm the business, financial condition, and results of operations.

NOTE 4. REVENUES

Disaggregation of Revenue

Revenue by type was as follows:

SCHEDULE OF DISAGGREGATION OF REVENUE

		2022		2021		2022		2021	2023		2022		2023		2022
	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021		2023		2022		2023		2022
Revenue type
Product revenue	$	332,792	$	494,011	$	2,170,943	$	1,710,579	$	80,475	$	332,792	$	327,863	$	2,170,943
Shipping revenue		35,507		65,359		165,762		123,040		7,920		35,507		3,770		165,762
Miscellaneous income		4,887		-		44,887		-		-		4,887		9,390		44,887
Service income		-		-		-		36,687
Total Revenue	$	373,186	$	559,370	$	2,381,592	$	1,870,306	$	88,395	$	373,186	$	341,023	$	2,381,592

Warranty Reserve

The Company records a reserve for warranty repairs upon the initial delivery of vehicles to its dealer network. The Company provides a product warranty on each vehicle including powertrain, battery pack and electronics package. Such warranty matches the product warranty provided by its supply chain for warranty parts for all unaltered vehicles and is not considered a separate performance obligation. The supply chain warranty does not cover warranty-based labor needed to replace a part under warranty. Warranty reserves include management’s best estimate of the projected cost of labor to repair/replace all items under warranty. The Company reserves a percentage of all dealer-based sales to cover an industry-standard warranty fund to support dealer labor warranty repairs. Such percentage is recorded as a component of cost of revenues in the statement of operations. As of September 30, ~~2022~~2023, and December 31, ~~2021,~~2022, warranty reserves were recorded within accrued expenses of $~~410,017~~395,071 and $~~240,517~~410,017, respectively.

NOTE 5. ACCOUNTS RECEIVABLE, NET

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

SCHEDULE OF ACCOUNTS RECEIVABLE

		2022		2021
	September 30,		December 31,			September 30,		December 31,
	2022		2021			2023		2022
Trade receivables	$	456,372	$	1,142,567		$	143,990	$	512,420
Less: Allowance for doubtful accounts		-		(173,138	)		-		(2,349	)
Accounts receivable, net	$	456,372	$	969,429		$	143,990	$	510,071

The Company reduced allowance for doubtful accounts by $~~173,138~~2,349 for the three and nine months ended September 30, 2023, and recorded $292,010 of bad debt expense due to direct write off balances due from Club Car, LLC (“Club Car”) for the nine months ended September 30, ~~2022, due to collecting on past due accounts, and~~2023. The Company recorded $2,136 of bad debt expense ~~of direct write off~~ for the three and nine months ended September 30, 2022.

NOTE 6. INVENTORY

Inventory consisted of the following:

SCHEDULE OF INVENTORY


	September 30,		December 31,		September 30,		December 31,
	2022		2021		2023		2022
Raw materials	$	537,166	$	3,481,614	$	3,889,979	$	330,931
Work-in-progress		-		51,441		-		-
Finished goods		942,335		210,982		456,631		639,450
Total	$	1,479,501	$	3,744,037	$	4,346,610	$	970,381

For the three months ended September 30, 2023, and 2022, ~~and 2021,~~ depreciation ~~recorded~~ for fleet inventory was $~~23,886~~0 and $23,886, and for the nine months ended September 30, ~~2022~~2023, and ~~2021,~~2022, was $~~71,661~~0 and $~~71,658~~71,661, respectively. The Company 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 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 Club Car Discount during the three and nine months ended September 30, 2022 required a $413,561~~ ~~net realizable value adjustment, necessitating the value of inventory to be written down.~~

~~F-10~~F-11

NOTE 7. PREPAID EXPENSES AND OTHER CURRENT ASSETS

SCHEDULE OF PREPAID EXPENSES AND OTHER CURRENT ASSETS

September 30, December 31,
2022 2021
Prepaid final assembly services $ 167,331 $ 439,660
Prepayments for inventory 1,101,693 1,622,617
Prepayments for insurance 207,599 -
Prepayments on advances on design 608,159 -
Prepayments on software 133,099 -
Prepaid other 109,682 213,901
Total Prepaid Expenses and Other Current Assets $ 2,327,563 $ 2,276,178

~~During the nine months ended September 30, 2022 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.~~

	September 30,		December 31,
	2023		2022
Prepayments for inventory	$	2,623,760	$	1,174,466
Prepayments for insurance		222,006		118,434
Prepayments on advances on design		-		75,000
Prepayments on software		150,468		103,851
Prepaid other		89,069		7,094
Total Prepaid Expenses and Other Current Assets	$	3,085,303	$	1,478,845

NOTE 8. PROPERTY AND EQUIPMENT, NET

Property and equipment consisted of the following:

SCHEDULE OF PROPERTY AND EQUIPMENT, NET


	September 30,			December 31,			September 30,			December 31,
	2022			2021			2023			2022
Computer and equipment	$	1,344,204		$	853,695		$	3,639,357		$	1,970,001
Furniture and fixtures		316,665			173,155			395,705			323,789
Lease improvements		662,013			282,271			1,275,050			952,952
Prototypes		450,225			300,376
Computer software		455,875			455,875			468,575			455,875
Property and equipment, gross		3,228,982			2,065,372			5,778,687			3,702,617
Less: Accumulated depreciation		(1,565,597	)		(1,230,212	)		(2,279,388	)		(1,510,280	)
Property and equipment, net	$	1,663,385		$	835,160		$	3,499,299		$	2,192,337

Depreciation expense for the three months ended September 30, ~~2022~~2023, and ~~2021~~2022 was $~~151,980~~324,052 and $~~74,655~~151,980, and for the nine months ended September 30, ~~2022~~2023, and ~~2021~~2022 was $~~335,385~~769,108 and $~~220,535~~335,385, respectively.

NOTE 9. ~~MARKETABLE SECURITIES~~ACCRUED EXPENSES

~~Marketable securities consisted of the following:~~

SCHEDULE OF ~~MARKETABLE SECURITIES~~ACCRUED EXPENSES

September 30, 2022
Realized Unrealized Transferred
Cost Basis Gains Loss to Cash Total
Bonds $ 12,235,258 $ 110,490 $ (75,204 ) $ (4,244,691 ) $ 8,025,853
US Treasury securities 7,764,742 - - - 7,764,742
$ 20,000,000 $ 110,490 $ (75,204 ) $ (4,244,691 ) $ 15,790,595

	September 30,		December 31,
	2023		2022
Accrued professional and consulting fees	$	97,900	$	410,711
Accrued payroll		464,166		6,000
Accrued warranty reserve		395,071		410,017
Accrued expenses other		35,829		138,209
Total accrued expenses	$	992,966	$	964,937

NOTE 10. STOCKHOLDERS’ EQUITY

Restricted Stock

On February ~~24, 2021,~~1, 2023, pursuant to the AYRO, Inc. 2020 Long-Term Incentive Plan, the Company granted ~~172,000~~95,087 shares of restricted stock to non-executive directors at a value of $~~7.66~~6.00 per share. ~~43,000~~ ~~shares of common stock remained unissued as of December 31, 2021; these shares were issued during~~During the nine months ended September 30, ~~2022.~~2023, 47,542 were vested and an equal number of shares of common stock were issued.

On February 1, 2022, pursuant to the AYRO, Inc. 2020 Long-Term Incentive Plan, the Company ~~granted~~issued ~~442,249~~55,282 shares of restricted stock to non-executive directors at a value of $~~1.29~~10.32 per share. ~~During~~As of December 31, 2022, 13,858 shares of common stock remained unissued; these shares were issued during the nine months ended September 30, ~~2022,~~ 2023.

~~221,424~~

On February 24, 2021, pursuant to the AYRO, Inc. 2020 Long-Term Incentive Plan, the Company issued 21,500 shares of restricted stock to non-executive directors at a value of $61.28 per share. As of December 31, 2021, 5,375 shares of common stock remained unissued; these shares were issued ~~and vested.~~during the nine months ended September 30, 2022.

Share Increase Amendment

On September 14, 2023, the Company amended its certificate of incorporation to increase the number of authorized shares of common stock from 100,000,000 to 200,000,000 and made a corresponding change to the number of authorized shares of capital stock, effective September 15, 2023.

~~F-11~~F-12

~~Preferred Stock~~

Series H Convertible Preferred Stock

SCHEDULE OF PAYMENT OF PREFERRED STOCK


Number of Series H Preferred Stock outstanding as of September 30, 2023		8
Multiplied by the stated value	$	154
Equals the gross stated value	$	1,232
Divided by the conversion price	$	1,478.40
Equals the convertible shares of Company Common Stock		1
Multiplied by the fair market value of Company Common Stock as of September 30, 2023	$	2.34
Equals the payment	$	2

Series H-3 Convertible Preferred Stock

~~As of September 30, 2022, in the event of liquidation, the holders of preferred stock were entitled to receive payments as follows:~~SCHEDULE OF PAYMENT OF PREFERRED STOCK


Number of Series H-3 Preferred Stock outstanding as of September 30, 2023		1,234
Multiplied by the stated value	$	138
Equals the gross stated value	$	170,292
Divided by the conversion price	$	1,324.80
Equals the convertible shares of Company Common Stock		129
Multiplied by the fair market value of Company Common Stock as of September 30, 2023	$	2.34
Equals the payment	$	302

Series H-6 Convertible Preferred Stock

SCHEDULE OF PAYMENT OF PREFERRED STOCK

Number of Series H Preferred Stock outstanding as of September 30, 2022 8
Multiplied by the stated value $ 154
Equals the gross stated value $ 1,232
Divided by the conversion price $ 184.8
Equals the convertible shares of Company Common Stock 7
Multiplied by the fair market value of Company Common Stock as of September 30, 2022 $ 0.59
Liquidation Value $ 4


Number of Series H-6 Preferred Stock outstanding as of September 30, 2023		50
Number of Series H Preferred Stock outstanding as of September 30, 2023		50
Multiplied by the stated value	$	72
Equals the gross stated value	$	3,600
Divided by the conversion price	$	5.76
Equals the convertible shares of Company Common Stock		6.25
Multiplied by the fair market value of Company Common Stock as of September 30, 2023	$	2.34
Equals the payment	$	1,053

August 2023 Private Placement

On August 7, 2023, the Company entered into the Purchase Agreement with the Investors, pursuant to which it agreed to sell to the Investors (i) an aggregate of 22,000 Series H-7 Preferred Shares with a stated value of $1,000 per share, initially convertible into up to 2,750,000 shares of the Company’s common stock at a conversion price of $8.00 per share, and (ii) Warrants initially exercisable for up to an aggregate of 2,750,000 shares of common stock in the Private Placement.

In connection with the Private Placement, pursuant to an Engagement Letter, dated August 7, 2023, between the Company and Palladium Capital Group, LLC (the “Placement Agent”), the Company agreed to pay the Placement Agent (i) a cash fee equal to 6% of the gross proceeds from any sale of securities in the Private Placement and (ii) warrants (“Placement Agent Warrants,” and together with the Investor Warrants, the “Warrants”) to purchase shares of common stock equal to 2% of the number of shares of common stock that the Preferred Shares are initially convertible into, with an initial exercise price of $8.00 per share (subsequently reduced to $2.00 per share pursuant to a Stock Combination Event Adjustment following the Reverse Stock Split) and a five-year term.

The Series ~~H-3 Convertible~~H-7 Preferred Shares are convertible into common stock (the “Conversion Shares”) at the election of the holder at any time at an initial conversion price of $8.00 (the “Conversion Price”). The Conversion Price is subject to adjustments for stock dividends, stock splits, reclassifications and the like, and subject to price-based adjustment in the event of any issuances of common stock, or securities convertible, exercisable or exchangeable for common stock, at a price below the then-applicable Conversion Price (subject to certain exceptions). The Company will be required to redeem the Series H-7 Preferred Shares in 12 equal monthly installments, commencing on various dates, at the option of each Investor, between February 7, 2024, and August 7, 2025. The amortization payments due upon such redemption are payable, at the Company’s election, in cash at 105% of the Installment Redemption Amount (as defined in the Certificate of Designations), or subject to certain limitations, in shares of common stock valued at the lower of (i) the Conversion Price then in effect and (ii) the greater of (A) 80% of the average of the three lowest closing prices of the Company’s common stock during the thirty consecutive trading day period immediately prior to the date the amortization payment is due and (B) $0.0744 (subject to adjustment for stock splits, stock dividends, stock combinations, recapitalizations or other similar events) or, in any case, such lower amount as permitted, from time to time, by the Nasdaq Stock Market. The holders of the Series H-7 Preferred Shares have the option to defer amortization payments or, subject to certain limitations as specified in the Certificate of Designations, can elect to accelerate installment conversion amounts.

F-13

The holders of ~~September 30, 2022,~~the Series H-7 Preferred Shares are entitled to dividends of 8.0% per annum, compounded monthly, which are payable in cash or shares of common stock at the Company’s option, in accordance with the terms of the Certificate of Designations. Upon the occurrence and during the continuance of a Triggering Event (as defined in the ~~event~~Certificate of ~~liquidation,~~Designations), the Series H-7 Preferred Shares will accrue dividends at the rate of 15% per annum. Upon conversion or redemption, the holders of ~~preferred stock were~~the Series H-7 Preferred Shares are also entitled to receive ~~payments as follows:~~a dividend make-whole payment. The holders of Series H-7 Preferred Shares are entitled to vote with the holders of the common stock on all matters that such common stockholders are entitled to vote upon.

~~SCHEDULE OF PAYMENT OF PREFERRED STOCK~~

Number of Series H-3 Preferred Stock outstanding as of September 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 September 30, 2022 $ 0.59
Liquidation Value $ 607

~~Series H-6 Convertible Preferred Stock~~Notwithstanding the foregoing, the Company’s ability to settle conversions and make amortization and dividend make-whole payments using shares of common stock is subject to certain limitations set forth in the Certificate of Designations. Further, the Certificate of Designations contains a certain beneficial ownership limitation after giving effect to the issuance of shares of common stock issuable upon conversion of, or as part of any amortization payment or dividend make-whole payment under, the Certificate of Designations or Warrants.

AsThe Certificate of ~~September 30, 2022, in~~Designations includes certain Triggering Events including, among other things, the ~~event~~suspension from trading or the failure of ~~liquidation,~~the common stock to be trading or listed (as applicable) on an eligible market for a period of five (5) consecutive trading days, the Company’s failure to pay any amounts due to the holders of ~~preferred stock were entitled~~the Series H-7 Preferred Shares when due. In connection with a Triggering Event, each holder of Series H-7 Preferred Shares will be able to ~~receive payments as follows:~~require the Company to redeem in cash any or all of the holder’s Series H-7 Preferred Shares at a premium set forth in the Certificate of Designations.

The Series H-7 Preferred Shares were determined to be more akin to a debt-like host than an equity-like host. The Company identified the following embedded features that are not clearly and closely related to the debt host instrument: 1) make-whole interest upon a contingent redemption event, 2) make-whole interest upon a conversion event, 3) an installment redemption upon an Equity Conditions Failure (as defined in the Certificate of Designations), and 4) variable share-settled installment conversion. These features were bundled together, assigned probabilities of being effected and measured at fair value. Subsequent changes in fair value of these features are recognized in the Consolidated Statement of Operations. The Company estimated the $~~SCHEDULE OF PAYMENT OF PREFERRED STOCK~~5.1 million fair value of the bifurcated embedded derivative at issuance using a Monte Carlo simulation model, with the following inputs: (i) estimated equity volatility of 75.0%, (ii) the time to maturity of 1.48 years, (iii) a discounted market interest rate of 12.2%, (iv) dividend rate of 8.0%, (v) a penalty dividend rate of 15.0%, and (vi) probability of default of 14.8%. The fair value of the bifurcated derivative liability was estimated utilizing the with and without method which uses the probability weighted difference between the scenarios with the derivative and the plain vanilla maturity scenario without a derivative.

Number of Series H-6 Preferred Stock outstanding as of September 30, 2022 50
Number of Series H Preferred Stock outstanding as of September 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 September 30, 2022 $ 0.59
Liquidation Value $ 850

The discount to the fair value is included as a reduction to the carrying value of the Series H-7 Preferred Shares. During the three months ended September 30, 2023, the Company recorded a total discount of approximately $15.5 million upon issuance of the Series H-7 Preferred Shares, which was comprised of the issuance date fair value of the associated embedded derivative of approximately $5.1 million, stock issuance costs of approximately $0.6 million and the fair value of the Investor Warrants of approximately $9.8 million. As of September 30, 2023, it is probable that the Series H-7 Preferred Shares will be redeemed. In accordance with ASC 480-10-S99-3A the Company is accreting the discount on the effective interest method and approximately $1.2 million was recorded as a deemed dividend during the three and nine months ended September 30, 2023.

Following the Reverse Stock Split, as discussed in Note 1 above, the Conversion Price was reduced to $2.00 per share pursuant to the terms of the Certificate of Designation.

During each of the three and nine months ended September 30, 2023, the Company recorded a gain of approximately $3.2 million, and $0 for the comparable periods in 2022, related to the change in fair value of the derivative liability which is recorded in other income (expense) on the Statements of Operations. The Company estimated the $1.9 million fair value of the bifurcated embedded derivative at September 30, 2023 using a Monte Carlo simulation model, with the following inputs: (i) estimated equity volatility of 76.0%, (ii) the time to maturity of 1.33 years, (iii) a discounted market interest rate of 14.93%, (iv) dividend rate of 8.0%, (v) a penalty dividend rate of 15.0%, and (vi) probability of default of 14.53%.

F-14

Common Stock Warrants

Pursuant to the Private Placement, the Company issued to Investors Warrants initially exercisable for 2,750,000 shares of common stock. In addition, pursuant to its advisory agreement with the placement agent for the Private Placement, the Company issued to the Placement Agent Warrants initially exercisable for 55,000 shares of common stock with the same terms. The Placement Agent Warrants are within the scope of ASC 718 pursuant to ASC 718-10-20 but are subject to liability classification as they would be required to be classified as liabilities in accordance with ASC 815.

The 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. The Warrants are also entitled to certain adjustments following any stock split, stock dividend, stock combination, reverse stock split, recapitalization or other similar transaction involving the outstanding Common Stock. Such adjustments were triggered as a result of the Reverse Stock Split, resulting in an adjusted exercise price per share from $8.00 to $2.00. An additional 8,415,000 warrants exercisable at $2.00 per share were issued.

The Warrants were determined to be subject to liability classification as they are considered to be indexed to the Company’s own stock but fail to meet the requirements for equity classification in accordance with ASC 815. As such, the Company recorded the Warrants as a liability at fair value with subsequent changes in fair value recognized in earnings. The Company utilized the Black Scholes Model to calculate the value of these warrants issued during the three months ended September 30, 2023. The fair value of the Warrants of approximately $10.0 million was estimated at the date of issuance using a stock price of $5.20, an exercise price of $8.00, and the following weighted average assumptions: (i) dividend yield 0%; (ii) expected term of 5.0 years; (iii) equity volatility of 96.0%; and (iv) a risk-free interest rate of 4.21%.

Transaction costs incurred attributable to the issuance of the Warrants of $1.2 million were immediately expensed to general and administrative expense.

During each of the three and nine months ended September 30, 2023, and 2022, the Company recorded a loss of approximately $10.0 million, and $0 for comparable periods in 2022, related to the change in fair value of the warrant liability which is recorded in other income (expense) on the Statements of Operations. The fair value of the Warrants of approximately $20.0 million was estimated at September 30, 2023, utilizing the Black Scholes Model using a stock price of $2.34, an exercise price of $2.00, and the following weighted average assumptions: (i) dividend yield 0%; (ii) remaining term of 4.86 years; (iii) equity volatility of 96.5%; and (iv) a risk-free interest rate of 4.61%.

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 price of $6.336 per share). Anti-dilution adjustments were triggered resulting in an adjusted exercise price per share from $20.00 to $8.00 as the result of the issuance of Series H-7 Preferred Shares and from $8.00 to $6.336 as of result of the Reverse Stock Split. An additional 93,940 warrants exercisable at $6.336 per share were issued.

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 $199,000 during the three and nine months ended September 30, 2023. The Company valued the initial deemed dividend as the difference between: (a) the modified fair value of the Series H-5 Warrants in the amount of $165,000 and (b) the fair value of the original award prior to the modification of $21,000. The Company valued the second deemed dividend as the difference between: (a) the modified fair value of the Series H-5 Warrants in the amount of $141,000 and (b) the fair value of the original award prior to the modification of $86,000.

The warrants were valued using the Black-Scholes option pricing model on the date of the modification and issuance using the following assumptions for the initial deemed dividend: (a) fair value of common stock of $5.20 per share, (b) expected volatility of 76.00%, (c) dividend yield of 0%, (d) risk-free interest rate of 4.91%, and (e) expected life of 1.82 years. The warrants were valued using the Black-Scholes option pricing model on the date of the modification and issuance using the following assumptions for the second deemed dividend: (a) fair value of common stock of $3.90 per share, (b) expected volatility of 76.00%, (c) dividend yield of 0%, (d) risk-free interest rate of 5.13%, and (e) expected life of 1.73 years.

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

SCHEDULE OF WARRANT ACTIVITY

	Shares Underlying Warrants			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in years)							Weighted Average
Outstanding at December 31, 2021		6,108,823		$	7.37		2.31
								Shares Underlying			Weighted Average		Remaining Contractual Term
								Warrants			Exercise Price		(in years)
Outstanding at December 31, 2022									763,253		$	58.40		1.32
Granted		-			-				11,313,940			2.00		-
Exercised		-			-				-			-		-
Expired		(2,800	)		165.60				(471,435	)		58.40		-
Outstanding at September 30, 2022		6,106,023		$	7.30		1.57
Outstanding at September 30, 2023									11,605,758		$	3.42		4.77

~~F-12~~F-15

NOTE 11. STOCK-BASED COMPENSATION

~~2014 Equity Incentive Plan~~

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 September 30, 2022, there were~~ no ~~shares available for grant under the 2014 Plan.~~

~~AYRO 2017 Long Term Incentive 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 September 30, 2022. At September 30, 2022,~~ no ~~shares remained available for grant under future awards under the 2017 Long-Term Incentive Plan. In conjunction with the 2020 incentive plan, the remaining unissued amounts were cancelled.~~

AYRO 2020 Long Term Incentive Plan

The Company has reserved a total of ~~4,089,650~~1,229,956 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 ~~had awards concerning an aggregate~~has 822,843 stock options, restricted stock and warrants remaining under this plan as of~~1,366,183 shares~~ ~~of common stock outstanding under the Plan at~~ September 30, ~~2022, including stock options and restricted stock. At September 30, 2022,~~ ~~1,151,399~~ ~~shares remained available for grant under future awards under the Plan.~~2023.

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

SCHEDULE OF ~~STOCK-BASED~~STOCK - BASED COMPENSATION

									2023		2022		2023		2022
	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021		2023		2022		2023		2022
Research and development	$	5,269	$	18,786	$	15,069	$	62,980	$	6,219	$	5,269	$	18,017	$	15,069
Sales and marketing		6,001		60,771		19,816		184,853		1,999		6,001		7,488		19,816
General and administrative		320,911		3,580,935		888,959		6,750,153		214,681		320,911		706,263		888,959
Total	$	332,181	$	3,660,492	$	923,844	$	6,997,986	$	222,899	$	332,181	$	731,768	$	923,844
Stock based compensation	$	332,181	$	3,660,492	$	923,844	$	6,997,986

Options

The following table reflects ~~the~~a summary of stock option activity:

SCHEDULE OF STOCK-BASED COMPENSATION, STOCK OPTIONS, ACTIVITY

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 (726,753 ) 3.14
Outstanding at September 30, 2022 785,422 $ 6.10 7.97

				Weighted Average		Contractual Life
	Number of Shares			Exercise Price		(Years)
Outstanding at December 31, 2022		97,240		$	49.20		7.56
Forfeitures		(58,544	)		7.76
Outstanding at September 30, 2023		38,696		$	87.67		6.79

Of the outstanding options, ~~608,726~~27,460 were vested and exercisable as of September 30, ~~2022.~~2023. At September 30, ~~2022~~2023, the aggregate intrinsic value of stock options vested and exercisable was $0.

The Company recognized $~~18,821~~15,165 and $~~669,999~~18,821 of stock option expense for the three months ended September 30, 2023, and 2022, and ~~2021,~~$46,698 and $44,899 ~~and $1,170,958~~ for the nine months ended September 30, ~~2022~~2023, and September 30, ~~2021,~~2022, respectively. Total compensation cost related to non-vested stock option awards not yet recognized as of September 30, ~~2022~~2023, was $~~191,176~~53,321 and will be recognized on a straight-line basis through the end of the vesting periods through ~~December 2023.~~April 2025. The amount of future stock option compensation expense could be affected by any future option grants or by any forfeitures.

~~The Company uses the following inputs when valuing stock-based awards.~~

~~SCHEDULE OF FUTURE STOCK OPTION COMPENSATION EXPENSE~~

	For the nine months ended September 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~~

Restricted Stock

SCHEDULE OF ~~STOCK-BASED COMPENSATION,~~ RESTRICTED STOCK ACTIVITY

	Number of Shares			Weighted Average Grant Price					Weighted
Outstanding at December 31, 2021		450,000		$	2.48
						Number of			Average Grant
						Shares			Price
Outstanding at December 31, 2022							82,570		$	15.28
Granted		542,248			1.06		95,087			6.00
Vested		(221,424	)		1.29		(61,364	)		5.95
Outstanding at September 30, 2022		770,824		$	1.89
Outstanding at September 30, 2023							116,293		$	8.58

~~F-13~~F-16

On February 1, ~~2022,~~2023, pursuant to the AYRO, Inc. 2020 Long-Term Incentive Plan, the Company ~~issued~~granted ~~442,248~~95,087 shares of restricted stock to non-executive directors at a value of $~~1.29~~6.00 per share. ~~On August 23, 2022, pursuant to the employment agreement with David E. Hollingsworth, the Company issued~~There are ~~100,000~~no vested and unissued shares of restricted stock awards as of September 30, 2023. As of September 30, 2023, 116,290 shares of restricted stock ~~at a value of $0.03~~ ~~per share. Vesting will occur as predetermined value-based targets are met. We estimate the fair value of stock-based~~remain unvested and ~~cash unit awards containing a market condition using a Monte Carlo simulation model.~~ unissued.

The Company recognized compensation expense related to all restricted stock during the three months ended September 30, ~~2022~~2023, and ~~2021~~2022 of $~~313,360~~207,716 and $~~2,990,493~~313,360 and for the nine months ended September 30, 2023, and 2022 ~~and 2021 of~~ $~~878,945~~686,869 and $~~5,827,028~~878,945, respectively. Total compensation cost related to non-vested restricted stock not yet recognized as of September 30, ~~2022~~2023, was $~~631,307~~220,741.

NOTE 12. CONCENTRATIONS AND CREDIT RISK

Revenues

In March 2019, the Company entered into a five-year Master Procurement Agreement, or the MPA, with Club Car, LLC (“Club Car”) for the sale of AYRO’s four-wheeled vehicle. The MPA grants Club Car the exclusive right to sell AYRO’s four-wheeled vehicle in North America, provided that Club Car orders at least 500 vehicles per year. The MPA has an initial term of five (5) years commencing January 1, 2019 and may be renewed by Club Car for successive one-year periods upon 60 days’ prior written notice, so long as those minimums are met. One customer accounted for approximately ~~100~~65% of the Company’s revenues for the three months ended September 30, ~~2022~~2023, and another customer accounted for 9912%. Club Car accounted for approximately 100% of the Company’s revenue for the three months ended September 30, ~~2021. Two~~2022. Three customers accounted for approximately ~~96%~~36%, 31%, and 412%~~, respectively,~~ of the Company’s revenues for the nine months ended September 30, ~~2022 and~~2023, respectively. Club Car accounted for approximately ~~71%~~95 ~~and~~ ~~28%, respectively,~~% of the Company’s revenues for the nine months ended September 30, ~~2021.~~

In connection with the forthcoming introduction of the Vanish, the Company is reevaluating its 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 with2022. We do not expect Club Car ~~and may seek~~ to ~~replace Club Car with new business partners and channel partners for selling their products beginning with the Vanish. Any loss of Club Car as~~remain a customer ~~or significant reduction in purchases by Club Car, could have an adverse impact on the Company’s financial condition and operating results.~~going forward.

Accounts Receivable

As of September 30, ~~2022 one customer~~2023, two customers accounted for ~~approximately~~ ~~100~~85% and 14%, respectively, of the Company’s net accounts receivable. As of December 31, ~~2021 two customers~~2022, Club Car accounted for ~~more than~~ 10~~% of the Company’s net accounts receivable. One customer accounted for approximately~~ 87~~% of the Company’s gross account receivable and a second customer accounted for approximately~~ 10100% of the Company’s net accounts receivable.

Purchasing

The Company places orders with various suppliers. Certain suppliers accounted for more than 10% of the Company’s raw materials purchased for the three months ended September 30, 2023, including, one for 16%, one for 14%, one for 12%, and the fourth for 10%. During the nine months ended September 30, ~~2022 and 2021, three~~2023, no suppliers ~~provided~~accounted for more than 10% of the Company’s raw ~~materials purchases.~~ materials.

During the nine months ended September 30, 2022, one supplier accounted for approximately 57%, and two other suppliers accounted for 12~~% of the Company’s raw materials purchases. During the nine months ended September 30, 2021 one supplier accounted for approximately~~ 51~~%, and another supplier accounted for~~ 11% of the Company’s raw materials purchases. The Company’s purchases of raw materials from three suppliers were approximately 49%, 17%, and 13% respectively, of its total purchases of raw materials for the three months ended September 30, ~~2022, and approximately~~ 56~~% and~~ 16~~%, respectively, of such purchases for the three months ended September 30, 2021. Any disruption in the operation of any of these suppliers could adversely affect the Company’s operations.~~2022.

~~Manufacturing~~

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

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

~~F-14~~F-17

NOTE 13. COMMITMENTS AND CONTINGENCIES

Manufacturing Agreements

On ~~September 25, 2020, AYRO entered into~~July 28, 2022, the Company partnered with Linamar Corporation (“Linamar”) a ~~Master Manufacturing Services Agreement~~Canadian manufacturer, in a manufacturing agreement (the ~~“Karma Agreement”~~“Linamar MLA”) ~~with Karma Automotive, LLC (“Karma”). The Karma Agreement expired in September 2022. Pursuant to the agreement Karma agreed~~ to provide certain ~~manufacturing services, starting~~sub assembly and assembly parts, including the cabin frame and skate for the Vanish (collectively, the “Products”). During the term of the Linamar MLA, Linamar has the exclusive right to supply the Products to the Company, subject to certain exceptions. The Linamar MLA has an initial term of three years and will automatically renew for successive two-year terms unless either party has given at least 12 months’ written notice of nonrenewal. Either party may terminate the Linamar MLA at any time upon 12 months’ written notice, and in ~~2021, under an attached statement~~the event of ~~work including final assembly,~~a change in control of the Company prior to the end of the initial term, the Company may terminate upon written notice within three days of completion of such change in control.

In the event the Company terminates the Linamar MLA prior to its expiration, whether following a change in control or otherwise, the Company must purchase any remaining raw material ~~storage~~inventory, finished goods inventory and ~~logistical support~~work in progress and any unamortized capital equipment used in production and testing of ~~our vehicles in return for compensation~~the Products and pay a termination fee of $~~1,160,800~~750,000, subject to certain adjustments. The Company is dependent on the Linamar MLA, and in the event of its termination the Company’s manufacturing operations and customer deliveries would be materially impacted.

Supply Chain Agreements

In 2017, the Company executed a supply chain contract with Cenntro, which has historically been the Company’s primary supplier. Cenntro was previously a significant stockholder in AYRO Operating. Cenntro owns the design of the AYRO 411 Fleet vehicles and has granted the Company an exclusive license to 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.

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 December 31, 2022, the balance was zero. 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. Additionally, all inventory associated with Cenntro’s lithium-ion line NCM line was written off to cost of goods sold for $1,317,289.

The Company ~~paid Karma an amount of $440,000~~ ~~for the first production level~~has canceled all purchase orders and future builds with Cenntro and $~~80,000~~ ~~for setup costs. In addition, the Company issued warrants~~currently intends to ~~an advisor to the transaction with a fair value of $66,845~~ ~~due at signing of the contract, which amount was expensed~~only order replacement parts from Cenntro in the ~~prior year. The payment was recorded as prepaid expense as of December 31, 2020. For the year ended December 31, 2021, the Company recorded expense of $641,140~~future. ~~related to the Karma Agreement for the assembly of the AYRO 411 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, and $~~73,333~~ ~~was recorded for pre-production costs. $167,331~~ ~~prepaid balance remained as of September 30, 2022. During the three and nine months ended September 30, 2022, $110,349~~ ~~and $272,329~~ ~~was expensed, respectively. During the three and nine months ended September 30, 2021, $60,520~~ ~~and $90,780~~ ~~was expensed respectively.~~

Litigation

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.

~~Supply Chain Agreements~~

In 2017, the Company executed a supply chain contract with Cenntro, which has historically been the Company’s primary supplier. Prior to the Merger, Cenntro was a significant shareholder in AYRO Operating. Cenntro owns the design of the AYRO 411 Fleet vehicles and has granted the Company an exclusive license to 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 September 30, 2022 the balance was~~ ~~zero. 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. 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.~~

~~Other~~

~~As of January 1, 2019, DropCar had accrued approximately $232,000~~ ~~for the settlement of multiple employment disputes. As of September 30, 2022 and December 31, 2021, approximately~~ $~~3,500~~ ~~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~~(non-exempt worker whose workday is longer than ten hours ~~in a day)~~must receive an extra hour of pay at the basic minimum hourly rate). 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 September 30, 2022 and December 31, 2021, the balance due remains~~ $~~45,000, 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.~~

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

~~F-15~~F-18

NOTE 14. FAIR VALUE MEASUREMENTS

Fair value measurements discussed herein are based upon certain market assumptions and pertinent information available to management as of and during the nine months ended September 30, 2023. The carrying amounts of cash equivalents, accounts receivable, other current assets, other assets, accounts payable, and accrued expenses approximated their fair values as of September 30, 2023, due to their short-term nature. The fair value of the bifurcated embedded derivative related to the convertible preferred stock was estimated using a Monte Carlo simulation model, which uses as inputs the fair value of our common stock and estimates for the equity volatility and traded volume volatility of our common stock, the time to maturity of the convertible preferred stock, the risk-free interest rate for a period that approximates the time to maturity, dividend rate, a penalty dividend rate, and our probability of default. The fair value of the warrant liability was estimated using the Black Scholes Model which uses as inputs the following weighted average assumptions, as noted above: dividend yield, expected term in years, equity volatility, and risk-free interest rate.

Fair Value on a Recurring Basis

The Company follows the guidance in ASC 820 for its financial assets and liabilities that are re-measured and reported at fair value at each reporting period, and non-financial assets and liabilities that are re-measured and reported at fair value at least annually. The estimated fair value of the warrant liability and bifurcated embedded derivatives represent Level 3 measurements. The following table presents information about the Company’s liabilities that are measured at fair value on a recurring basis at September 30, 2023, and indicates the fair value hierarchy of the valuation inputs the Company utilized to determine such fair value:

The following table sets forth a summary of the change in the fair value of the warrant liability that is measured at fair value on a recurring basis:

SUMMARY OF CHANGE IN FAIR VALUE WARRANT LIABILITY

					At Inception
			September 30,		August 10,
Description	Level		2023		2023
Liabilities:
Warrant liability (see Note 10)		3	$	20,065,440	$	9,969,480
Bifurcated embedded derivative liability (see Note 10)		3	$	1,931,000	$	5,147,000
Fair value of liability		3	$	1,931,000		5,147,000

The following table sets forth a summary of the change in the fair value of the bifurcated embedded derivative liability that is measured at fair value on a recurring basis:

SUMMARY OF CHANGE IN FAIR VALUE OF DERIVATIVE LIABILITY

	September 30, 2023
Balance on December 31, 2022	$	-
Issuance of warrants		9,969,480
Issuance of convertible preferred stock with bifurcated embedded derivative
Change in fair value of warrant liability		10,095,960
Change in fair value of bifurcated embedded derivative
Balance on September 30, 2023	$	20,065,440

The following table sets forth a summary of the change in the fair value of the bifurcated embedded derivative liability that is measured at fair value on a recurring basis:

	September 30, 2023
Balance on December 31, 2022	$	-
Issuance of convertible preferred stock with bifurcated embedded derivative		5,147,000
Change in fair value of bifurcated embedded derivative		(3,216,000	)
Balance on September 30, 2023	$	1,931,000

NOTE 15. SUBSEQUENT EVENTS

On October 20, 2023, Club Car filed a complaint against the Company in the Superior Court of Columbia County, Georgia (Civil Action File No. 2023ECV0838) (the “Club Car Complaint”), alleging that the Company had breached its contractual obligations to Club Car under the Company’s master procurement agreement with Club Car (the “MPA”) due to alleged defects in the vehicles sold to Club Car and the Company’s termination of warranty support following termination of the MPA. Club Car seeks unspecified damages and indemnification for past and future customer claims with respect to the vehicles sold to Club Car under the MPA. The Company intends to vigorously contest these allegations.

F-19

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,” or “AYRO” refer to AYRO, Inc. and its subsidiaries.

Cautionary Note Regarding Forward-Looking Statements

This 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 Vanish (the “Vanish”) 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.

●	we may be acquired by a third 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;

●	ifa significant portion of our ~~Master Procurement Agreement with~~revenues has historically been derived from Club Car ~~is terminated,~~LLC (“Club Car”) pursuant to the MPA (as defined below). Following our termination of the MPA, our sales could decrease significantly, and we will need to identify new strategic channel partners to support the sales of our vehicles;

●	we face risks associated with litigation and claims;

●	holders of our ~~failure~~Series H-7 convertible preferred stock with a stated value of $1,000 per share (“Series H-7 Preferred Stock”) are entitled to ~~meet~~certain payments that may be paid in cash or in shares of common stock depending on the ~~continued listing requirements~~circumstances, if we make these payments in cash, we may be required to expend a substantial portion of ~~The Nasdaq Capital Market could~~our cash resources, and if we make these payments in common stock, it may result in ~~a delisting~~substantial dilution to the holders of our common stock;

●	the certificate of designations for the Series H-7 Preferred Stock (the “Certificate of Designations”) and the warrants issued concurrently therewith contain anti-dilution provisions and other adjustment provisions that have resulted in the reduction of the conversion price of the Series H-7 Preferred Stock and the exercise price of such warrants and may do so again in the future. These features may increase the number of shares of common stock issuable upon conversion of the Series H-7 Preferred Stock or upon the exercise of the warrants;

●	under the Purchase Agreement (as defined below) we are subject to certain restrictive covenants that may make it difficult to procure additional financing;

●	we rely on a single third-party supplier and manufacturer located in Canada for certain sub-assembly and assembly parts for the Vanish and any disruption in the operations of this third-party supplier could adversely affect our business and results of operations;

●	if we lose our exclusive license to manufacture the AYRO 411x model (“411x”) 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 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 are unable to effectively implement or manage our 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 is derived from a single customer;~~future growth depends on customers’ willingness to adopt electric vehicles;

●	we may experience lower-than-anticipated market acceptance of our ~~future growth depends on customers’ willingness to adopt electric vehicles;~~current models and the vehicles in development;

●	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;

●	if we fail to include key feature sets relative to the target markets for our electric vehicles, our business will be harmed;

●	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;

●	if our vehicles fail to perform as expected due to defects, our ability to develop, market and sell our electric vehicles could be seriously harmed;

●	we depend on key personnel to operate our business, and the loss of one or more members of our management team, or our failure to attract, integrate and retain other highly qualified personnel in the future, could harm our business;

●	transitioning from an offshoring to an onshoring business model carries risk;

●	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;

●	failure to maintain the strength and value of our brand could have a material adverse effect on our business, financial condition, and results of operations;

●	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;

●	an unexpected change in failure rates of our products could have a material adverse impact on our business, financial condition, and operating results;

●	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;

●	failure in our information technology and storage systems could significantly disrupt the operation of our business;

●	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~~ interests;

●	our long-term capital requirements are subject to numerous risks;

●	we may invest in or acquire other businesses, and our business may suffer if we are unable to successfully integrate acquired businesses into our company or otherwise manage the growth associated with multiple acquisitions;

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

●	our vehicles are subject to multi-jurisdictional motor vehicle standards;

●	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.~~cases;

●	unusual or significant litigation, governmental investigations or adverse publicity arising out of alleged defects in our vehicles, or otherwise, may derail our business;

●	we are required to comply with state-specific regulations regarding the sale of vehicles by a manufacturer;

●	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 from third parties 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;

●	many of our proprietary designs are in digital form, and a breach of our computer systems could result in these designs being stolen;

●	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;

●	legal proceedings or third-party claims of intellectual property infringement and other challenges may require us to spend substantial time and money and could harm our business;

●	we are generally obligated to indemnify our sales channel partners, customers, suppliers and contractors for certain expenses and liabilities resulting from intellectual property infringement claims regarding our products, which could force us to incur substantial costs;

●	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 markets due to licensing requirements and subject us to liability if we are not in compliance with applicable laws.

For a more detailed discussion of these and other factors that may affect our business and that could cause ~~the~~our 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 with the SEC on March 23, ~~2022~~2023 and amended on May ~~2, 2022~~1, 2023 (“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.

~~Merger~~

On May 28, 2020, pursuant to the previously announced Agreement and Plan of Merger, dated December 19, 2019, 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”).

Overview

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 updating~~have commenced sales and delivery of our ~~next~~current model, ~~year (model year 2023) vehicle lineup~~the Vanish, in support of the aforementioned markets.

Reverse Stock Split

On September 15, 2023, we effected a one-for-eight reverse stock split of our common stock (the “Reverse Stock Split”). All share and per share information in this quarterly report have been retroactively adjusted to reflect the Reverse Stock Split.

Strategic Review

Following the hiring of our ~~new~~current 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~~our strategic review, we ~~canceled~~cancelled development of our planned next-generation three-wheeled ~~high speed~~high-speed vehicle.

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 ceased production of the ~~AYRO~~ 411x from Cenntro in September 2022 in order to focus our resources on the development and launch of the new 411 fleet vehicle model year 2023 refresh, the Vanish.

~~In December 2021, we~~ We began design and development onof the Vanish in December 2021, including updates onto our supply chain, ~~evolution,~~ the offshoring/onshoring mix, our manufacturing strategy, and our annual model year refresh program. We ~~expect to unveil~~commenced low-rate initial production of the ~~first~~ Vanish ~~prototype~~ in the ~~fourth~~second quarter of ~~2022.~~

~~Nasdaq Minimum Bid Price Requirement~~

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

In order to regain compliance with Nasdaq’s minimum bid price requirement, our common stock must maintain a minimum closing bid price of $1.00 for at least ten consecutive business days during the Compliance Period. In the event we do not regain compliance by the end of the Compliance Period, we may be eligible for additional time to regain compliance. To qualify, we will be required to meet the continued listing requirement for the market value of our publicly held shares and all other initial listing standards for The Nasdaq Capital Market, with the exception of the bid price requirement, and will need to provide written notice of its intention to cure the deficiency during the second compliance period, by effecting a reverse stock split, if necessary. If we meet these requirements, we may be granted an additional 180 calendar days to regain compliance. However, if it appears to Nasdaq that we will be unable to cure the deficiency, or if we are not otherwise eligible for the additional cure period, Nasdaq will provide notice that our common stock will be subject to delisting. We have not regained compliance as of the date of this report.

Products

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 services, cargo services, and personal/group transport in a quiet, zero emissions vehicle with a lower total cost of ownership. ~~The majority of our sales are currently comprised of sales of our four-wheeled vehicle to Club Car, LLC (“Club Car”), through a strategic arrangement entered into in early 2019.~~

Manufacturing Agreement with Cenntro

In 2017, AYRO Operating partnered with Cenntro in a supply chain agreement to provide sub-assembly manufacturing services. Cenntro owns the design of the AYRO Club Car 411 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”~~“Cenntro MLA”), in order for us to maintain our exclusive territorial rights pursuant to the Cenntro MLA, we must meet certain minimum purchase requirements.

We ~~have~~ imported semi-knocked-down vehicle kits from Cenntro for the AYRO ~~411x~~411 Fleet models ~~comprising~~that comprised our model year 2022 lineup. The vehicle kits ~~are~~were received through shipping containers at the assembly facility of Karma Automotive LLC (“Karma”), our previous manufacturing partner in southern California, as well as at our customization, service and integration facility in Round Rock, Texas. The vehicles ~~are~~were 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 Cenntro MLA is valid, we have determined to cease production of the ~~AYRO~~ 411x and focus our resources on ~~the development and launch of~~ the Vanish. 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~~inventory remaining on hand as of ~~unsaleable inventory.~~September 30, 2023, was valued at $109,238. We expect to lose our exclusive license under the Cenntro 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~~The new Vanish ~~to utilize~~utilizes assemblies and products that ~~will~~ largely eliminate our dependency on Chinese imports and optimize the supply chain to rely primarily upon North American and European sources. Final assembly of the Vanish ~~is expected to occur~~occurs in our Round Rock, Texas ~~facilities, which we are currently building out in anticipation of Vanish production.~~facilities.

Manufacturing Agreement with Linamar

~~Master Procurement Agreement~~On July 28, 2022, we partnered with ~~Club Car~~Linamar Corporation (“Linamar”), a Canadian manufacturer, in a manufacturing agreement (the “Linamar MLA”) to provide certain sub assembly and assembly parts, including the cabin frame and skate for the Vanish (collectively, the “Products”). During the term of the Linamar MLA, Linamar has the exclusive right to supply the Products to the Company, subject to certain exceptions. The Linamar MLA has an initial term of three years and will automatically renew for successive two-year terms unless either party has given at least 12 months’ written notice of nonrenewal. Either party may terminate the Linamar MLA at any time upon 12 months’ written notice, and in the event of a change in control of the Company prior to the end of the initial term, we may terminate upon written notice within three days of completion of such change in control.

In ~~March 2019,~~the event we terminate the Linamar MLA prior to its expiration, whether following a change in control or otherwise, we must purchase any remaining raw material inventory, finished goods inventory, work in progress and any unamortized capital equipment used in production and testing of the Products and pay a termination fee of $750,000, subject to certain adjustments. We are dependent on the Linamar MLA, and in the event of its termination our manufacturing operations and customer deliveries would be materially impacted.

Under the Linamar MLA, we must commit to certain minimum purchases, to be determined by AYRO on a quarterly basis.

We import the Products from Linamar in Canada, and we manufacture and assemble the Vanish at our customization, service, and integration facility in Round Rock, Texas. Over 98% of the vehicle assemblies, components, and products for the Vanish are from North American and European sources.

Club Car MPA Termination

The majority of our sales have historically been comprised of sales to Club Car pursuant to a master procurement agreement (the “MPA”) entered into ~~a five-year Master Procurement Agreement (the “MPA”~~by and among AYRO Operating Company, Inc., our subsidiary (“AYRO Operating”) ~~with~~, and Club Car ~~for the sale of our four-wheeled vehicles.~~on March 5, 2019. The MPA ~~grants~~granted Club Car the exclusive right to sell ~~our four-wheeled vehicles~~the AYRO 411 Fleet in North America, provided that Club Car ~~orders~~ordered at least 500 vehicles per year.

~~Although~~ Club Car did not meet ~~the~~this volume threshold for 2020, 2021 or 2021, we have not sold our model year 2022 411x vehicles commercially other than through Club Car. Under the terms of the MPA, we receive orders from Club Car dealers for vehicles of specific configurations, and 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, so long as those minimums are met.2022. Pursuant to the MPA, weAYRO Operating 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 delivery of an acquisition notice to Club Car. WeAYRO Operating also agreed to collaborate with Club Car on new products similar to ~~our four-wheeled vehicle~~the AYRO 411 Fleet and improvements to existing products and granted Club Car a right of first refusal to purchase similar commercial utility vehicles which AYRO Operating may develop during the term of the MPA. ~~For the three and nine months ended September 30, 2022, revenues from Club Car constituted approximately 100% of our revenues.~~

On April 4, 2023, AYRO Operating delivered notice of termination of the MPA to Club Car, and we intend to replace Club Car with new business partners for selling our products beginning with the Vanish. We do not expect Club Car to remain a customer going forward. In connection with the termination of the MPA and the forthcoming introduction of the Vanish, 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 Vanish. Any~~The loss of Club Car as a customer ~~or significant reduction in purchases by Club Car,~~ could have ana material adverse ~~impact~~effect on our sales, financial condition, and ~~operating results.~~results of operations.

Recent Developments

~~Manufacturing Services Agreement with Karma~~August 2023 Private Placement

On ~~September 25, 2020,~~August 7, 2023, we entered into a ~~Master Manufacturing Services~~Securities Purchase Agreement (the ~~“Karma~~“Purchase Agreement”) with ~~Karma,~~certain existing investors (the “Investors”), pursuant to which ~~Karma~~we agreed to ~~provide~~sell to the Investors in a private placement (the “Private Placement”) (i) an aggregate of 22,000 shares of our newly-designated Series H-7 Preferred Stock, initially convertible into up to 2,750,000 shares of our common stock (the “Preferred Shares”) at a conversion price (the “Conversion Price”) of $8.00 per share, and (ii) warrants to acquire up to an aggregate of 2,750,000 shares of common stock at an initial exercise price (“Exercise Price”) of $8.00 per share (the “Investor Warrants,”). Following the Reverse Stock Split, the Conversion Price was reduced to $2.00 per share pursuant to the terms of the Certificate of Designations and the Exercise Price was reduced to $2.00 per share pursuant to the terms of the Warrants (as defined below).

The Private Placement is exempt from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”), pursuant to the exemption for transactions by an issuer not involving any public offering under Section 4(a)(2) of the Securities Act and Rule 506 of Regulation D of the Securities Act and in reliance on similar exemptions under applicable state laws. Each of the Investors has represented to us that it is an accredited investor within the meaning of Rule 501(a) of Regulation D and that it is acquiring the securities for investment only and not with a view towards, or for resale in connection with, the public sale or distribution thereof. The Preferred Shares and Investor Warrants were offered without any general solicitation by us or our representatives.

The Private Placement closed on August 10, 2023. The aggregate gross proceeds from the Private Placement were approximately $22 million. We expect to use the net proceeds from the Private Placement for general corporate purposes.

The Purchase Agreement contains certain ~~manufacturing services~~representations and warranties, covenants, and indemnities customary for similar transactions. The representations, warranties and covenants contained in the Purchase Agreement were made solely for the ~~production of our vehicles. The initial statement of work provides that Karma will perform assembly of a certain quantity~~benefit of the ~~AYRO 411 vehicles~~parties to the Purchase Agreement and ~~provide testing, materials management~~may be subject to limitations agreed upon by the contracting parties.

In connection with the Private Placement, pursuant to an Engagement Letter, dated August 7, 2023, between the Company and ~~outbound logistics services. For such services in the initial statement of work,~~Palladium Capital Group, LLC (the “Placement Agent”), we agreed to pay ~~$1.2 million~~the Placement Agent (i) a cash fee equal to ~~Karma,~~6% of ~~which (i) $0.52 million was paid at closing~~the gross proceeds from any sale of securities in the Private Placement and (ii) ~~$0.64 million was due~~warrants (“Placement Agent Warrants,” and ~~payable five months~~together with the Investor Warrants, the “Warrants”) to purchase shares of common stock equal to 2% of the number of shares of common stock that the Preferred Shares are initially convertible into, with an initial exercise price of $8.00 per share (subsequently reduced to $2.00 per share pursuant to a Stock Combination Event Adjustment (as defined below) following the ~~satisfaction~~Reverse Stock Split) and a five-year term.

Series H-7 Preferred Stock

The terms of the Preferred Shares are as set forth in the Certificate of Designations, which was filed with the Secretary of State of the State of Delaware prior to the closing of the Private Placement. The Preferred Shares are convertible into shares of common stock (the “Conversion Shares”) at the election of the holder at any time at an initial Conversion Price of $8.00. The Conversion Price is subject to adjustments for stock dividends, stock splits, reclassifications and the like, and subject to price-based adjustment in the event of any issuances of common stock, or securities convertible, exercisable or exchangeable for common stock, at a price below the then-applicable Conversion Price (subject to certain ~~production requirements. This second~~exceptions). Following the Reverse Stock Split, the Conversion Price for the Preferred Shares was reduced to $2.00 per share pursuant to the terms of the Certificate of Designations. We are required to redeem the Preferred Shares in twelve equal monthly installments, commencing on a date between February 7, 2024, and August 7, 2025, at the election of each Investor. The amortization payments due upon such redemption are payable, at our election, in cash at 105% of the Installment Redemption Amount (as defined in the Certificate of Designations), or subject to certain limitations, in shares of common stock valued at the lower of (i) the Conversion Price then in effect and (ii) the greater of (A) 80% of the average of the three lowest closing prices of the common stock during the thirty trading day period immediately prior to the date the amortization payment is due or (B) $0.744, or, in any case, such lower amount as permitted, from time to time, by the Nasdaq Stock Market, which amortization payments are subject to certain adjustments as set forth in the Certificate of Designations.

The holders of the Preferred Shares are entitled to dividends of 8% per annum, compounded monthly, which are payable in cash or shares of common stock at our option, in accordance with the terms of the Certificate of Designations. Upon the occurrence and during the continuance of a Triggering Event (as defined in the Certificate of Designations), the Preferred Shares will accrue dividends at the rate of 15% per annum. Upon conversion or redemption, the holders of the Preferred Shares are also entitled to receive a dividend make-whole payment assuming for calculation purposes that the stated value remained outstanding through and including the twelve (12) month anniversary of the first installment date as elected by an Investor. Except as required by applicable law, the holders of Preferred Shares are entitled to vote with holders of the common stock on as as-converted basis, with the number of votes to which each holder of Preferred Shares is entitled to be calculated assuming conversion at the Minimum Price (as defined in Rule 5635 of the Rules of the Nasdaq Stock Market) applicable immediately before the execution and delivery of the Purchase Agreement.

Notwithstanding the foregoing, our ability to settle conversions and make amortization and dividend make-whole payments using shares of common stock is subject to certain limitations set forth in the Certificate of Designations, including a limit on the number of shares that may be issued until the time, if any, that our stockholders have approved the issuance of more than 19.9% of our outstanding shares of common stock in accordance with Nasdaq listing standards (the “Nasdaq Stockholder Approval”). We agreed to seek the Nasdaq Stockholder Approval at a meeting of stockholders, and such approval was ~~accrued~~obtained at the Company’s special meeting of stockholders held on September 14, 2023. Our directors and officers executed an agreement to vote their shares in favor of the Nasdaq Stockholder Approval. The Certificate of Designations also contains a certain beneficial ownership limitation after giving effect to the issuance of shares of common stock issuable upon conversion of, or as part of any amortization or dividend make-whole payment under, the Certificate of Designations or Warrants. Such amount may be lowered with the consent of the holder and the Company.

The Certificate of Designations includes certain Triggering Events (as defined in the Certificate of Designations), including, among other things, the suspension from trading or the failure of the common stock to be trading or listed (as applicable) on an eligible market for a period of five (5) consecutive trading days and our failure to pay any amounts due to the holders of the Preferred Shares when due. In connection with a Triggering Event, each holder of Preferred Shares will be able to require us to redeem in cash any or all of the holder’s Preferred Shares at a premium set forth in the Certificate of Designations.

We are subject to certain affirmative and negative covenants regarding the incurrence of indebtedness, the existence of liens, investment transactions, the repayment of indebtedness, the payment of cash in respect of dividends (other than dividends pursuant to the Certificate of Designations), distributions or redemptions, the transfer of assets, and certain minimum cash requirements and establishment of a segregated deposit account for the proceeds of the offering, among other matters.

There is no established public trading market for the Preferred Shares, and we do not intend to list the Preferred Shares on any national securities exchange or nationally recognized trading system.

Warrants

The Warrants are exercisable for shares of common stock (the “Warrant Shares”) immediately at an initial Exercise Price of $8.00 per share and expire five years from the date of issuance. The Exercise Price is subject to adjustments for stock dividends, stock splits, reclassifications and the like, and subject to price-based adjustment, on a “full ratchet” basis, in the event of any issuances of common stock, or securities convertible, exercisable or exchangeable for common stock, at a price below the then-applicable Exercise Price (subject to certain exceptions). Following the Reverse Stock Split, the Exercise Price was reduced to $2.00 per share pursuant to the terms of the Warrants and the number of Warrant Shares issuable upon the exercise of the Warrants was increased proportionately. There is no established public trading market for the Warrants, and we do not intend to list the Warrants on any national securities exchange or nationally recognized trading system.

Registration Rights

The Preferred Shares, the Conversion Shares, the Warrants, and the Warrant Shares have not been registered under the Securities Act. In connection with the Purchase Agreement, on August 7, 2023, the Company and the Investors entered into a Registration Rights Agreement (the “Registration Rights Agreement”), pursuant to which we are required to file a resale registration statement (the “Registration Statement”) with the SEC to register for resale 150% of the Conversion Shares and the Warrant Shares promptly following the closing date, but in no event later than 30 calendar days after the closing date, and to have such Registration Statement declared effective by the Effectiveness Date (as defined in the Registration Rights Agreement). We filed a registration statement for the resale of such securities on September 8, 2023, as amended on September 27, 2023. We will be obligated to pay certain liquidated damages to the Investors if we fail to file or cause the Registration Statement to be declared effective by the SEC when required or fail to maintain the effectiveness of ~~December 31, 2021~~the Registration Statement pursuant to the terms of the Registration Rights Agreement.

Nasdaq Minimum Bid Price Requirement

As previously reported, on October 3, 2022, we received a letter from the Listing Qualifications Department of the Nasdaq Stock Market (“Nasdaq”) indicating that, based upon the closing bid price of our common stock for the 30 consecutive business day period between August 19, 2022 and ~~paid February~~September 30, 2022, we did not meet the minimum bid price of $1.00 per share required for continued listing on The Nasdaq Capital Market pursuant to Nasdaq Listing Rule 5550(a)(2) (the “Minimum Bid Price Requirement”).

The letter also indicated that we would be provided with a compliance period of 180 calendar days, or until April 3, ~~2022.~~2023, in which to regain compliance pursuant to Nasdaq Listing Rule 5810(c)(3)(A). On April 4, 2023, we received a letter from Nasdaq notifying us that we have been granted an additional 180-day period, or until October 2, 2023, to regain compliance with the Minimum Bid Price Requirement.

On ~~February 24, 2021,~~September 15, 2023, we effected the ~~Karma Agreement was amended~~Reverse Stock Split in order to ~~allow Karma~~regain compliance with the Minimum Bid Price Requirement. On October 2, 2023, we received written notice from the Listing Qualifications Department of Nasdaq stating that because our common stock had a closing bid price at or above $1.00 per share for the last 10 consecutive business days, from September 18 to ~~assemble a certain number of units of~~September 29, 2023, we had regained compliance with the ~~AYRO 411x vehicle. The Karma Agreement expired in September 2022.~~

~~In late September 2022, we retired~~Minimum Bid Price Requirement, and that the ~~411x assembly line in connection with our transition to production of the Vanish.~~matter is now closed.

~~Supply Agreement with Gallery Carts~~

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. 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 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 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 campuses.

Gallery, a premier distributor of AYRO vehicles, 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.

Factors Affecting Results of Operations

Master Procurement Agreement

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~~directed 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~~Substantially all of our ~~relationship with~~sales have historically been to Club Car pursuant to the MPA. On April 4, 2023, we delivered notice of termination of the MPA to Club Car, and ~~may seek~~we intend to replace Club Car with new business partners for selling our products beginning with the Vanish. We do not expect Club Car to remain a customer going forward.

~~COVID-19 Pandemic~~

Our business, results of operations and financial condition have been adversely impacted by the 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 through the fourth quarter of 2022. The pandemic adversely impacted our sales and the demand for our products in 2021 and the first half of 2022.

Tariffs

Countervailing tariffs on certain goods from China continued to have an adverse impact on raw material costs throughout 2021 and ~~the first three quarters of 2022 and are expected to continue to do so through the fourth quarter of~~ 2022.

~~Shipping Costs and Delays~~

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 Vanish 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 nine months ended September 30, 2022 and could continue to materially and adversely affect our business and financial results throughout the remainder of 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 three quarters of 2022. We expect these impacts to continue through the fourth quarter of 2022.

Supply Chain

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 three quarters of~~ 2022, we at times experienced 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 these shortages of lithium-ion battery cells and the varying supply limitations of other critical components to continued impacting our business through the fourth quarter of 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~~The Vanish ~~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 Vanish to utilize~~utilizes 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 Vanish prototype in the fourth quarter of 2022.~~

~~Inventory Obsolescence~~

At 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 September 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. During the three and nine months ended September 30, 2022 a $413,561 net realizable value adjustment was recorded in September 2022 due to the Club Car Discount During the three and nine months ended September 30, 2022 $413,561 and $2,351,947 was expensed for impairment of inventory.

Components of Results of Operations

Revenue

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, 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. In September 2022, Club Car required a discount of $2,000 per vehicle, to be applied to all past and future 2022 sales (the “Club Car Discount”). Revenue was reduced by $0.13 million as a result of the Club Car Discount for the three and nine-months ended September 30, 2022.

Cost of Goods Sold

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 the cost of revenue to increase in absolute dollars as product revenue increases. At June 30, 2022, we determined that testing of obsolescence was required for inventory due to the quality of NCM components 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. During the three and nine months ended September 30, 2022, The Club Car Discount required a $413,561 net realizable value adjustment, necessitating a write down of the value of inventory. During the three and nine months ended September 30, 2022 $413,561 and $2,351,947 was expensed for impairment of inventory.

Operating Expenses

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.

810

Stock-based compensation

We account for stock-based compensation expense in accordance with 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 itthe restricted stock 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.

Research and Development Expense

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

Sales and marketing ~~expense consists~~expenses 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 potential sales channels.

General and Administrative Expense

General and administrative ~~expense consists~~expenses consist 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.

Other (Expense) Income

Other (expense) income consists ~~of income received or expenses incurred for activities outside of our core business. Other expense consists~~ primarily of interest expense, ~~and~~ unrealized gain/loss on marketable ~~securities.~~securities and changes in fair values of warrants and derivative liabilities.

Provision for Income Taxes

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.

911

Results of Operations

Three months ended September 30, ~~2022~~2023, compared to three months ended September 30, ~~2021~~2022

The following table sets forth our results of operations for each of the periods set forth below:

	For the Three Months Ended September 30,									Three Months Ended September 30,
	2022			2021			Change			2023			2022			Change
Revenue	$	373,186		$	559,370		$	(186,184	)	$	88,395		$	373,186		$	(284,791	)
Cost of goods sold		955,003			955,466			(463	)		231,837			955,003			(723,166	)
Gross loss		(581,817	)		(396,096	)		(185,721	)		(143,441	)		(581,817	)		438,375

Operating expenses:
Research and development		1,837,510			4,165,732			(2,328,222	)		1,335,167			1,837,511			(502,344	)
Sales and marketing		384,748			646,713			(261,965	)		390,684			384,748			5,936
General and administrative		3,000,156			6,805,788			(3,805,632	)		4,370,684			3,000,156			1,370,528
Total operating expenses		5,222,414			11,618,233			(6,395,819	)		6,096,535			5,222,414			874,121

Loss from operations		(5,804,231	)		(12,014,329	)		6,210,098			(6,239,976	)		(5,804,231	)		(435,745	)
Other income and (expense):
Other income, net		51,792			12,254			39,538

Other income (expense):
Interest Income											35,557			51,792			(16,235	)
Change in FV-Warrant Liability											(10,095,960	)		-			(10,095,960	)
Change in FV-Derivative Liability											3,216,000			-			3,216,000
Unrealized gain/loss on marketable securities											403,996			(32,135	)		436,131
Realized gain on marketable securities		103,000			-			103,000			90,812			103,000			(12,189	)
Unrealized loss on marketable securities		(32,135	)		-			(32,135	)
Other income (expense), net											(6,349,596	)		122,657			(6,472,254	)

Net loss	$	(5,681,574	)	$	(12,002,075	)	$	6,470,501		$	(12,589,572	)	$	(5,681,574	)	$	(6,907,998	)

Revenue

Revenue was ~~$0.37~~$0.09 million for the three months ended September 30, ~~2022~~2023, as compared to ~~$0.56~~$0.37 million for the same period in ~~2021,~~2022, a decrease of ~~33%~~76.3%, or ~~$0.19~~$0.28 million. The decrease in revenue was ~~primarily due~~the result of a reduction in sales to ~~the~~ Club Car ~~Discount, of a $2,000 discount per vehicle sold on all 2022 sales, which reduced revenue by $0.13 million.~~

as we wind down our relationship with Club Car.

Cost of goods sold and gross loss

Cost of goods sold ~~remained unchanged~~decreased by $0.72 million, or 75.7% for the three months ended September 30, ~~2022,~~2023, as compared to the same period in ~~2021. A $0.41 million net realizable value adjustment was recorded in September~~ 2022, ~~due to~~corresponding with the ~~Club Car Discount.~~

~~Gross margin percentage was (155.9%) for the three months ended September 30, 2022, as compared to (70.8%) for the three months ended September 30, 2021. The~~ decrease in ~~gross margin percentage was due to credit memos issued in connection with the Club Car Discount, and the corresponding net realizable value adjustment.~~vehicle sales.

Research and development expense

Research and development (“R&D”) expense was ~~$1.69~~$1.33 million for the three months ended September 30, ~~2022,~~2023, as compared to ~~$4.17~~$1.84 million for the same period in ~~2021,~~2022, a decrease of ~~$2.48~~$0.50 million, or ~~59.5%~~27.3%. The decrease was primarily due to ~~a repositioning~~reduced R&D expenses from consultants of expenses related to personnel costs for our engineering, design, and research teams from the initiated development of our planned next-generation three-wheeled vehicle to the Vanish. We had a decrease in R&D contracting for professional service and design costs of $2.21$1.0 million ~~and a decrease~~offset by an increase in salaries ~~and related expenses~~ of ~~$0.24 million.~~$0.50 million, as the Company entered into low-rate initial production of the Vanish.

1012

Sales and marketing expense

Sales and marketing expense was ~~$0.38~~$0.39 million for the three months ended September 30, ~~2022,~~2023, as compared to ~~$0.65~~$0.38 million for the same period in ~~2021, a decrease~~2022, an increase of ~~$0.26~~$0.01 million, or ~~40.5%~~1.54%, as we ~~reduced the cost of~~continued our focus on marketing-related initiatives surrounding the Vanish. Salaries and related expenses decreased by $0.14 million due to the restructuring of our sales and marketing resources. Expenses related to consultants for professional marketing services remained unchanged.

General and administrative expenses

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 fees. General and administrative expense was $3$4.37 million for the three months ended September 30, ~~2022,~~2023, compared to ~~$6.81~~$3.0 million for the same period in ~~2021, a decrease~~2022, an increase of ~~$3.81~~$1.37 million, or ~~55.9%,~~45.68% primarily due to ~~a $3.26 million decrease~~cost and associated expenses related to the issuance of Series H-7 Preferred Stock of $1.237 million. There was an increase in ~~stock based~~stock-based compensation expense. Salaries and related expenses excluding stock based compensation increased by $0.12 million, primarily due to expanding headcount. Fulfillment expense increased by $0.05 million. Depreciation increased by $0.08of $0.13 million.

Other income and ~~expenses~~expense

~~The Company~~We recorded a $6.47 million decrease of net other income due to the accounting treatment of the change in fair value of both warrant and derivative liabilities of $6.88 million, a $0.02 million decrease in interest income on cash accounts, and a decrease in realized ~~gain~~gains of ~~$0.1~~$0.01 million ~~and $0.03~~on marketable securities, partially offset by an increase in unrealized gains of $0.44 million ~~of unrealized loss.~~on marketable securities.

Nine months ended September 30, ~~2022~~2023, compared to nine months ended September 30, ~~2021~~2022

The following table sets forth our results of operations for each of the periods set forth below:

	For the Nine Months Ended September 30,									Nine Months Ended September 30,
	2022			2021			Change			2023			2022			Change
Revenue	$	2,381,592		$	1,870,306		$	511,286		$	341,023		$	2,381,592		$	(2,040,569	)
Cost of goods sold		4,959,660			2,030,447			2,929,213			783,656			4,959,660			(4,176,004	)
Gross loss		(2,578,068	)		(160,141	)		(2,417,927	)		(442,633	)		(2,578,068	)		2,135,435

Operating expenses:
Research and development		3,749,714			9,135,410			(5,385,696	)		5,870,555			3,749,714			2,120,841
Sales and marketing		1,566,790			1,873,955			(307,165	)		1,529,637			1,566,790			(37,153	)
General and administrative		8,446,785			14,168,782			(5,721,997	)		10,461,733			8,446,785			2,014,948
Total operating expenses		13,763,289			25,178,147			(11,414,858	)		17,861,925			13,763,289			4,098,636

Loss from operations		(16,341,357	)		(25,338,288	)		8,996,931			(18,304,558	)		(16,341,357	)		(1,963,201	)
Other income and (expense):
Other income, net		71,389			40,943			30,446
Interest expense		-			(2,312	)		2,312

Other income (expense):
Interest Income											370,387			71,389			298,998
Change in FV-Warrant Liability											(10,095,960	)		-			(10,095,960	)
Change in FV-Derivative Liability											3,216,000			-			3,216,000
Unrealized gain/loss on marketable securities											602,211			(75,204	)		677,415
Realized gain on marketable securities		110,490			-			110,490			143,344			110,490			32,854
Unrealized loss on marketable securities		(75,204	)		-			(75,204	)
Other income (expense), net											(5,764,018	)		106,675			(5,870,693	)

Net loss	$	(16,234,682	)	$	(25,299,657	)	$	9,064,975		$	(24,068,576	)	$	(16,234,682	)	$	7,833,894

Revenue

Revenue was ~~$2.38~~$.34 million for the nine months ended September 30, ~~2022~~2023, as compared to ~~$1.87~~$2.38 million for the same period in ~~2021, an increase~~2022, a decrease of ~~27.3%~~85.7%, or ~~$0.51~~$2.04 million. The ~~increase~~decrease in revenue was the result of ~~an increase~~a reduction in ~~the volume of~~ sales ~~of our vehicles and related powered-food box sales and other vehicle options, partially offset by the~~to Club Car ~~Discount of a $2,000 discount per vehicle sold to all 2022 sales, which reduced revenue by $0.13 million.~~as we wind down our relationship with Club Car.

Cost of goods sold and gross ~~profit~~loss

Cost of goods ~~sold increased~~decreased by ~~$2.93~~$4.18 million, or ~~144.3%~~84.2% for the nine months ended September 30, ~~2022,~~2023, as compared to the same period in ~~2021,~~2022, corresponding with the decrease in vehicle sales and a $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~~that were expensed in ~~vehicle sales and an increase~~the same period in ~~time-of-order options for our vehicles and specialty products. The Company recorded a $0.41 million net realizable value adjustment due to the Club Car Discount.~~2022.

1113

Gross margin percentage was (108.3%) for the nine months ended September 30, 2022, as compared to (8.6%) for the nine months ended September 30, 2021. The decrease in gross margin percentage was primarily due to the write-off of NCM inventory, the write down of Cenntro balances, and the issuance of credit memos in connection with the Club Car Discount, and the corresponding net realizable value adjustment.

Research and development expense

Research and development (“R&D”) expense was ~~$3.6~~$5.87 million for the nine months ended September 30, ~~2022,~~2023, as compared to ~~$9.14~~$3.75 million for the same period in ~~2021, a decrease~~2022, an increase of ~~$5.54~~$2.12 million, or ~~60.6%~~56.6%. The ~~decrease~~increase was primarily due to ~~a repositioning of expenses related to personnel~~pre-production and low-rate initial production costs for ~~our engineering, design, and research teams from~~ the ~~initiated development of our planned next-generation three-wheeled vehicle to the Vanish. We had a decrease~~Vanish, including an increase in R&D contracting for professional service and design costs of ~~$4.79~~$0.85 million, ~~and a decrease~~an increase in salaries and related expenses of ~~$0.4~~$0.68 million and an increase in shop and tool supplies expenses of $0.66 million.

Sales and marketing expense

Sales and marketing expense was ~~$1.57~~$1.53 million for the nine months ended September 30, ~~2022,~~2023, as compared to ~~$1.87~~$1.57 million for the same period in ~~2021,~~2022, a decrease of ~~$0.31~~$0.04 million, or ~~16.4%~~2.4%, as we ~~reduced the cost of~~restructured our sales and marketing staff and marketing-related initiatives surrounding the Vanish. Salaries and related expenses ~~increased~~decreased by ~~$0.04~~$0.47 million due to ~~the restructuring of~~a reduction in our sales and marketing resources. ~~Stock based compensation decreased by $0.16 million. Expenses related to consultants~~Contracting for professional marketing services ~~decreased~~increased by ~~$0.10~~$0.19 million. Bad debt increased by $0.29 million due to winding down our relationship with Club Car.

General and administrative expenses

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 fees. General and administrative expense was ~~$8.45~~$10.46 million for the nine months ended September 30, ~~2022,~~2023, compared to ~~$14.17~~$8.45 million for the same period in ~~2021, a decrease~~2022, an increase of ~~$5.72~~$2.01 million, or ~~40.4%,~~23.9% primarily due to ~~a $5.9~~$1.237 million ~~decrease in stock based compensation expense.~~of issuance costs and associated legal expenses related to the issuance of Series H-7 Preferred Stock. Salaries and related expenses ~~excluding stock based compensation~~ increased by ~~$0.6~~$0.27 million, primarily due to expanding headcount. ~~Fulfillment expense~~Depreciation and ~~rent expense~~stock-based compensation increased by ~~$0.23~~$0.13 million and ~~$0.08~~decreased by $0.18 million, respectively. ~~Depreciation increased by $0.11 million.~~

Other income and ~~expenses~~expense

~~The Company~~We recorded a $5.87 million decrease of net other income resulting from the accounting treatment of the change in fair value of both warrant and derivative liabilities of $6.88 million, partially offset by a $0.30 million increase in interest income on cash accounts, an increase in unrealized gains of $0.68 million on marketable securities, and an increase in realized ~~gain~~gains of ~~$0.1~~$0.03 million ~~and $0.08 of unrealized loss.~~

on marketable securities.

Liquidity and Capital Resources

As of September 30, ~~2022,~~2023, we had ~~$39.43~~$3.29 million in cash ~~$15.79~~and cash equivalents, $10.0 million in restricted cash and $34.63 million in marketable securities and working capital of ~~$56.74~~$53.48 million. As of December 31, ~~2021,~~2022, we had ~~$69.16~~$39.1 million in cash, $9.85 million in marketable securities and working capital of ~~$72.31~~$49.67 million. The decrease in cash and increase in working capital ~~were~~was primarily a result of our ~~inventory write down and our~~ operating loss ~~respectively.~~partially offset by the issuance of Series H-7 Preferred Stock, the proceeds of which were primarily invested in marketable securities. Our sources of cash since inception have been predominately from the sale of equity and debt.

~~Our business is capital-intensive, and future capital requirements will depend on many factors, including our growth rate,~~On August 7, 2023, we entered into the ~~timing and extent~~Purchase Agreement with the Investors, pursuant to which we agreed to sell to the Investors (i) an aggregate of ~~spending~~22,000 Preferred Shares, initially convertible into up to ~~support development efforts, the results~~2,750,000 shares of our ~~strategic review, the expansion~~common stock at a conversion price of ~~our sales~~$8.00 per share, and ~~marketing teams, the timing~~(ii) Investor Warrants to acquire up to an aggregate of ~~new product introductions and the continuing market acceptance~~2,750,000 shares of ~~our products and services. We are working to control expenses and deploy our capital in the most efficient manner.~~common stock at an exercise price of $8.00 per share, for aggregate gross proceeds of approximately $22,000,000.

1214

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 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, and competition from larger companies, other technology companies and other technologies. Based on the foregoing, management believes that the existing cash, cash equivalents and marketable securitiesat September 30, ~~2022~~2023, will be sufficient to fund operations for at least the next twelve months following the date of this report.

InAs discussed above, in connection with ~~the~~our strategic review we canceled development of our planned next-generation three-wheeled vehicle. ~~In December 2021, we began design~~We commenced low-rate initial production of the Vanish in the second quarter of 2023 and ~~development on~~commenced initial sales and delivery of the ~~new 411 fleet vehicle model year 2023 refresh,~~Vanish in the ~~Vanish.~~third quarter of 2023.

Summary of Cash Flows

The following table summarizes our cash flows:

	For the Nine Months Ended September 30,						For the Nine Months Ended September 30,
	2022			2021			2023			2022
Cash Flows:
Net cash used in operating activities	$	(12,959,204	)	$	(18,723,657	)	$	(21,302,119	)	$	(12,959,204	)
Net cash used in investing activities	$	(16,772,412	)	$	(569,527	)	$	(26,138,696	)	$	(16,772,413	)
Net cash provided by financing activities	$	-		$	59,855,219		$	21,632,156		$	-

Operating Activities

During the nine months ended September 30, ~~2022,~~2023, we used ~~$12.96~~$21.30 million in cash in operating activities, ~~a decrease~~an increase in use of ~~$5.76~~$8.34 million ~~when~~ compared to the cash used in operating activities of ~~$18.72~~$12.96 million during the same period in ~~2021.~~2022. The ~~decrease~~increase in cash used in operating activities was primarily a result of ~~reduced consultant spend, collections on accounts receivable,~~raw materials purchased and ~~reduced cash used~~$1.7 million of prepayments for ~~purchasing inventory.~~inventory and manufacturing services, payments of accrued expenses, and an increase in 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.

Investing Activities

During the nine months ended September 30, ~~2022,~~2023, we used cash of ~~$16.77~~$26.14 million in investing activities as compared to ~~$0.57~~$16.77 million of cash used in investing activities during ~~2021,~~the nine months ended September 30, 2022, an increase of ~~$16.2~~$9.37 million. The net increase was primarily due to our ~~net~~ investment in marketable ~~securities.~~securities of $24.03 million for the nine months ended September 30, 2023, as compared to $15.76 million for the nine months ended September 30, 2022.

Financing Activities

During the nine months ended September 30, ~~2022, we had no~~2023, financing activities ~~of note. During the nine months ended September 30, 2021, we received net proceeds of an aggregate of $59.57~~provided $21.63 million from the issuance of ~~common stock, net of fees and expenses, $0.10 million from~~Series H-7 Preferred Stock, a 100% increase compared to the ~~exercise of warrants for cash. In addition, during June 2021, we issued 555,004 shares of common stock from the exercise of stock options and received cash proceeds of $1.5 million.~~same period in 2022.

Critical Accounting Estimates

Our management’s discussion and analysis of 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 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~~ changed ~~materially~~ from those previously reported in our Form ~~10-K.~~10-K in regard to the Series H-7 Preferred Stock and Warrants and the treatment of the associated warrant and derivative liabilities, which did not exist at the time the Form 10-K was filed.

1315

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

ITEM 4. CONTROLS AND PROCEDURES

Under the supervision and with the participation of management, including our principal executive and principal financial officers, we evaluated the effectiveness of our disclosure controls and procedures as of September 30, ~~2022.~~2023. 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 September 30, ~~2022,~~2023, 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.

In its assessment of the effectiveness of internal control over financial reporting as of December 31, ~~2021,~~2022, 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 for a full segregation of duties.

Management subsequently identified a material weakness related to the Company’s lack of a sufficient number of accounting personnel with the appropriate level of technical knowledge, experience and training in GAAP and SEC reporting requirements.

Plan for Remediation of Material Weakness

We have engaged a third party to conduct a full assessment of our controls and procedures. Additionally, we plan to engage a third party with GAAP and SEC reporting experience to assist with our financial reporting.

Changes in Internal ~~Controls~~Control over Financial Reporting

Except as 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.

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

~~There have been no changes~~On October 20, 2023, Club Car filed a complaint against the Company in the Superior Court of Columbia County, Georgia (Civil Action File No. 2023ECV0838) (the “Club Car Complaint”), alleging that the Company had breached its contractual obligations to Club Car under the MPA due to alleged defects in the vehicles sold to Club Car and the Company’s termination of warranty support following termination of the MPA. Club Car seeks unspecified damages and indemnification for past and future customer claims with respect to the ~~legal proceedings disclosed in our Form 10-K.~~vehicles sold to Club Car under the MPA. The Company intends to vigorously contest these allegations.

ITEM 1A. RISK FACTORS

Except as set forth below, there have been no material changes to the risk factors as identified in our Form 10-K.

~~Our failure to meet the continued listing requirements of The Nasdaq Capital Market could result in a delisting~~A significant portion of our ~~common stock.~~

~~As previously reported, on October 3, 2022, we received a letter~~revenues has historically been derived from ~~Nasdaq indicating that, based upon~~Club Car pursuant to the ~~closing bid price~~MPA. Following the termination of the Company’s common stock for the 30 consecutive business day period between August 19, 2022 and September 30, 2022, we did not meet the minimum bid price of $1.00 per share required for continued listing on The Nasdaq Capital Market pursuant to Nasdaq Listing Rule 5550(a)(2). In order to regain compliance with Nasdaq’s minimum bid price requirement, our common stock must maintain a minimum closing bid price of $1.00 for at least ten consecutive business days during the Compliance Period. In the event that we do not regain compliance by the end of the Compliance Period, we may be eligible for additional time to regain compliance. To qualify, we will be required to meet the continued listing requirement for the market value of its publicly held shares and all other initial listing standards for The Nasdaq Capital Market, with the exception of the bid price requirement, and will need to provide written notice of its intention to cure the deficiency during the second compliance period, by effecting a reverse stock split, if necessary. If we meet these requirements, we may be granted an additional 180 calendar days to regain compliance. However, if it appears to Nasdaq that we will be unable to cure the deficiency, or if we are not otherwise eligible for the additional cure period, Nasdaq will provide notice that our common stock will be subject to delisting.

To resolve the noncompliance, we may consider available options including a reverse stock split, which may not result in a permanent increase in the market price of our common stock, which is dependent on many factors, including general economic, market and industry conditions and other factors detailed from time to time in the reports we file with the SEC. It is not uncommon for the market price of a company’s shares to decline in the period following a reverse stock split.

~~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~~have historically been comprised of sales to Club Car pursuant to the ~~MPA. We are currently evaluating~~MPA, with revenues from Club Car constituting approximately 100% of our ~~relationship with~~revenues in 2022 and 79% of our revenues in 2021. On April 4, 2023, we delivered notice of termination of the MPA to Club Car, and ~~may seek~~we do not expect them to ~~replace them~~remain a customer going forward. The loss of Club Car as a ~~business partner. If~~customer could have a material adverse effect on our sales, financial condition, and results of operations.

Following the termination of 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.~~We face risks associated with litigation and claims.

Cenntro, which has historically been our largest supplier, owns the design of the AYRO 411x model and granted us an exclusive license to manufacture the AYRO 411 and 411x models for sale in North America, subjectWe are a party to certain ~~minimum purchase requirements. On May 31, 2022,~~legal proceedings, as further described under “Legal Proceedings.” In addition, from time to time, we ~~received a letter from Cenntro purporting to terminate all agreements~~may become involved in various claims, disputes and ~~contracts between the Company and Cenntro, which would result~~legal or regulatory proceedings that arise in the ~~termination~~ordinary course of ~~our exclusive license. We are~~business and relate to contractual and other obligations. Due to the uncertainties of litigation, we can give no assurance that we will prevail on any claims made against us 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 Cenntroany such lawsuit. Also, we can give no assurance that any other lawsuits or claims brought 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~~future will not have ~~a material~~an adverse effect on our ~~results~~financial condition, liquidity, or operating results. Adverse outcomes in some or all of these claims may result in significant monetary damages that could adversely affect our ability to conduct our business.

Holders of our Series H-7 Preferred Stock are entitled to certain payments under the Certificate of Designations that may be paid in cash or in shares of common stock depending on the circumstances. If we make these payments in cash, we may be required to expend a substantial portion of our cash resources. If we make these payments in common stock, it may result in substantial dilution to the holders of our common stock.

Under the Certificate of Designations, we are required to redeem the Series H-7 Preferred Shares in monthly installments, commencing on a date between February 7, 2024, and August 7, 2025. Holders of the Series H-7 Preferred Shares are also entitled to receive dividends, payable in arrears monthly, and dividends payable on installment dates shall be paid as part of the applicable installment amount. Installment amounts are payable, at the company’s election, in shares of common stock or, subject to certain limitations, in cash. Installment amounts paid in cash must be paid in the amount of 105% of the applicable payment amount due. For any installment amounts paid in shares of common stock, the number of shares of common stock shall be calculated by dividing the applicable payment amount due by the “installment conversion price.” The installment conversion price shall be equal to the lower of (i) the Conversion Price (as defined in the Certificate of Designations) in effect as of the applicable payment date and (ii) the greater of (A) 80% of the average of the three lowest closing prices of our common stock during the thirty trading day period immediately prior to the date the payment is due or (B) $0.744 (subject to adjustment for stock splits, stock dividends, stock combinations, recapitalizations or other similar events) or, in any case, such lower amount as permitted, from time to time, by the Nasdaq Stock Market.

Our ability to make payments due to the holders of the Preferred Shares using shares of common stock is subject to certain limitations set forth in the Certificate of Designations. If we are unable to make amortization payments in shares of common stock, we may be forced to make such payments in cash. If we do not have sufficient cash resources to make these payments, we may need to raise additional equity or debt capital, and we cannot provide any assurance that we will be successful in doing so. If are unable to raise sufficient capital to meet our payment obligations, we may need to delay, reduce, or eliminate certain of our operations, sell some or all of our assets or merge with another entity.

Our ability to make payments due to the holders of the Series H-7 Preferred Shares using cash is also limited by the amount of cash we have on hand at the time such payments are due, as well as certain provisions of the Delaware General Corporation Law. Further, we intend to make the amortization payments due to holders of Series H-7 Preferred Stock in the form of common stock to the extent allowed under the Certificate of Designations and ~~financial condition.~~applicable law in order to preserve our cash resources. The issuance of shares of common stock to the holders of our Series H-7 Preferred Stock will increase the number of shares of common stock outstanding and could result in substantial dilution to the existing holders of our common stock.

The Certificate of Designations and the Warrants contain anti-dilution provisions and other adjustment provisions that have resulted in the reduction of the Conversion Price of the Preferred Shares and the Exercise Price of the Warrants and may do so again in the future. These features may increase the number of shares of common stock issuable upon conversion of the Preferred Shares or upon the exercise of the Warrants.

The Certificate of Designations and the Warrants contain anti-dilution provisions, which provisions require the lowering of the applicable Conversion Price or Exercise Price, as then in effect, to the purchase price of equity or equity-linked securities issued in any subsequent offerings. The Certificate of Designations and the Warrants also contain certain other adjustment provisions that provide for the lowering of the applicable Conversion Price or Exercise Price, as then in effect, following any stock split, stock dividend, stock combination, reverse stock split, recapitalization or other similar transaction involving the outstanding Common Stock (a “Stock Combination Event Adjustment”). Pursuant to the Stock Combination Event Adjustment provisions, following the Reverse Stock Split, the Conversion Price and the Exercise Price were both reduced from $8.00 per share to $2.00 per share. Additionally, if in the future, while any shares of the Series H-7 Preferred Shares or Warrants are outstanding, we issue securities for a consideration per share of common stock (the “New Issuance Price”) that is less than the Conversion Price of the Series H-7 Preferred Shares or the Exercise Price of the Warrants, as then in effect, we will be required, subject to certain limitations and adjustments as provided in the Certificate of Designations or the Warrants, to reduce the Conversion Price or the Exercise Price to be equal to the New Issuance Price, which will result in a greater number of shares of common stock issuable upon conversion of the Preferred Shares and the exercise of the Warrants, which in turn will increase the dilutive effect of such conversions or exercises on existing holders of our common stock. It is possible that we will not have a sufficient number of shares available to satisfy the conversion of the Preferred Shares or the exercise of the Warrants if we enter into a future transaction that reduces the applicable Conversion Price or Exercise Price. If we do not have a sufficient number of available shares for any Preferred Share conversions or Warrant exercises, we may need to seek stockholder approval to increase the number of authorized shares of our common stock, which may not be possible and will be time consuming and expensive. The potential for such additional issuances may depress the price of our common stock regardless of our business performance and may make it difficult for us to raise additional equity capital while any of the Preferred Shares or Warrants are outstanding.

~~Since~~Under the ~~expiration of the Karma~~Purchase Agreement ~~in September 2022,~~ we ~~have assembled all vehicles at our own facilities, and we intend~~are subject to ~~continue doing so in the future. We~~certain restrictive covenants that may ~~be unable~~make it difficult 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.~~procure additional financing.

~~Prior~~The Purchase Agreement contains the following restrictive covenants, among others: (i) until Preferred Shares are no longer outstanding, we agreed not to enter into any variable rate transactions; (ii) we agreed to offer to the ~~expiration~~Investors, until the later of (x) the date on which no Preferred Shares no longer outstanding and (y) the maturity date of the ~~Karma Agreement~~Preferred Shares, the opportunity to participate in any subsequent securities offerings by us; and (iii) we agreed to use our reasonable best efforts to hold a stockholder meeting, at which we would solicit our stockholders’ affirmative vote for the Nasdaq Stockholder Approval no later than November 5, 2023, which approval was obtained at the Company’s special meeting of stockholders held on September ~~2022,~~14, 2023. If we ~~depended on Karma for~~require additional funding while these restrictive covenants remain in effect, a ~~significant portion of our vehicle assembly operations. Since~~financing transaction while remaining in compliance with the ~~expiration~~terms of the ~~Karma~~Purchase Agreement, or we ~~have assembled all vehicles at our own facilities, and intend to continue doing so in the future. We~~ may be ~~unable~~forced to ~~replace this lost manufacturing capacity on~~seek a ~~timely and cost-effective basis, which could adversely impact our operations and ability~~waiver from the investors party to ~~meet delivery timelines.~~the Purchase Agreement.

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 know whether we will be able to do so in a manner that avoids significant delays and cost overruns, including as a result of factors beyond our control such as problems with suppliers and vendors or force majeure events, meets our product commercialization and manufacturing schedules and satisfies the requirements of 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 cost-effective and could expose us to a number of additional risks that are outside our control, including:

●	~~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.~~

If we or a manufacturing partner were to 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 revenues, competitive position and reputation.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

~~None.~~There were no unregistered shares of the Company’s equity securities during the three months ended September 30, 2023, other than those previously reported in a Current Report on Form 8-K.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

1518

ITEM 6. EXHIBITS

The following exhibits are filed as part of, or incorporated by reference into, this Quarterly Report on Form 10-Q.

Exhibit No.		Description

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~~
3.2		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)

3.3**		Certificate of Designations of Series H-7 Convertible Preferred Stock

3.4		Certificate of Amendment to Amended and Restated Certificate of Incorporation, effective September 15, 2023 (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 September 15, 2023)

3.5		Certificate of Amendment to Amended and Restated Certificate of Incorporation, effective September 15, 2023 (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 September 15, 2023)

3.6		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~~
3.7		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~~
3.8		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)

~~10.1~~†
3.9		~~Employment Agreement,~~Third 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 ~~between~~Exchange Commission on October 12, 2023)

4.1		Form of Warrant (incorporated by reference to Exhibit 4.1 to the ~~Company~~Company’s Current Report on Form 8-K filed with the Securities and ~~David E. Hollingsworth, effective as~~Exchange Commission on August 8, 2023)

10.1		Form of ~~August 23, 2022~~Purchase Agreement (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on August ~~26, 2022)~~8, 2023)

10.2		Form of Registration Rights Agreement (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on August 8, 2023)

10.3 †		Second Amendment to the AYRO, Inc. 2020 Long-Term Incentive Plan, dated September 14, 2023 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on September 15, 2023)

1619

Exhibit No.		Description

31.1**		Certification of the Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2**		Certification of the Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1***		Certification of Principal Executive Officer and Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101 INS**		Inline XBRL Instance Document
101 SCH**		Inline XBRL Taxonomy Extension Schema Document
101 CAL**		Inline XBRL Taxonomy Calculation Linkbase Document
101 DEF**		Inline XBRL Taxonomy Extension Definition Linkbase Document
101 LAB**		Inline XBRL Taxonomy Labels Linkbase Document
101 PRE** 104		Inline XBRL Taxonomy Presentation Linkbase Document Cover Page Interactive Data File (embedded within the Inline XBRL document)

**	Filed herewith.

***	Furnished ~~herewith~~herewith.

†	Management or compensatory plan or arrangement.

1720

SIGNATURES

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.

	AYRO, INC.

Dated: November ~~03, 2022~~20, 2023	By:	/s/ Thomas M. Wittenschlaeger
		Thomas M. Wittenschlaeger
		~~President and~~ Chief Executive Officer (Principal Executive Officer)


Dated: November ~~03, 2022~~20, 2023	By:	/s/ David E. Hollingsworth
		David E. Hollingsworth
		Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)

1821

September 30, 2022
			Realized		Unrealized			Transferred
	Cost Basis		Gains		Loss			to Cash			Total
Bonds	$	12,235,258	$	110,490	$	(75,204	)	$	(4,244,691	)	$	8,025,853
US Treasury securities		7,764,742		-		-			-			7,764,742
	$	20,000,000	$	110,490	$	(75,204	)	$	(4,244,691	)	$	15,790,595

	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		(726,753	)		3.14
Outstanding at September 30, 2022		785,422		$	6.10		7.97