Form 10-Q - Quarterly report [Sections 13 or 15(d)]

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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 June 30, 2024

☐	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

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,” “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 August 13, 2024, the registrant had 6,878,618 shares of common stock outstanding.

AYRO, Inc.

Quarter Ended June 30, 2024

Table of Contents

		PAGE
PART I	FINANCIAL INFORMATION	F-1

ITEM 1.	Financial Statements (Unaudited)	F-1
	Condensed Consolidated Balance Sheets as of June 30, 2024 and December 31, 2023	F-1
	Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2024 and 2023	F-2
	Condensed Consolidated Statements of Changes in Mezzanine Equity and Stockholders’ Equity for the Three and Six Months Ended June 30, 2024 and 2023	F-3
	Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2024 and 2023	F-4
	Notes to 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	12
ITEM 4.	Controls and Procedures	12

PART II	OTHER INFORMATION	12

ITEM 1.	Legal Proceedings	12
ITEM 1A.	Risk Factors	12
ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	13
ITEM 3.	Defaults Upon Senior Securities	13
ITEM 4.	Mine Safety Disclosures	13
ITEM 5.	Other Information	13
ITEM 6.	Exhibits	14

SIGNATURES		15

PART I - FINANCIAL INFORMATION

ITEM 1. Financial Statements (Unaudited)

AYRO, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

	June 30,			December 31,
	2024			2023
	Unaudited			Audited
ASSETS
Current assets:
Cash and cash equivalents	$	14,091,100		$	33,440,867
Restricted cash		—			10,000,000
Marketable securities		22,872,151			—
Accounts receivable, net of allowance for credit losses of $130,515 and $53,696 at June 30, 2024, and December 31, 2023, respectively		129,302			219,000
Inventory		3,314,008			3,431,982
Prepaid expenses and other current assets		1,587,261			1,887,782
Total current assets		41,993,822			48,979,631

Property and equipment, net		2,351,061			3,117,164
Operating lease – right-of-use asset		569,346			671,451
Deposits and other assets		82,564			95,532
Total assets	$	44,996,793		$	52,863,778

LIABILITIES, MEZZANINE EQUITY AND STOCKHOLDERS’ EQUITY

Current liabilities:
Accounts payable	$	3,500,916		$	2,456,258
Accrued expenses and other current liabilities		1,509,201			1,656,541
Accrued preferred stock redemption payable (H-7)		1,329,047			—
Current portion lease obligation – operating lease		206,112			196,682
Total current liabilities		6,545,276			4,309,481

Derivative liability		6,773,000			9,400,000
Warrant liability		4,309,500			13,319,800
Lease obligation - operating lease, net of current portion		396,712			502,831
Total liabilities		18,024,488			27,532,112

MEZZANINE EQUITY
Redeemable Series H-7 Convertible Preferred Stock, ($0.0001 par value per share and $1,000 face value per share; authorized - 22,000 shares; issued and outstanding – 19,333 and 22,000 shares, at June 30, 2024, and December 31, 2023, respectively). Liquidation preference of $ $22,044,550, as of June 30, 2024		14,140,756			11,193,939

Stockholders’ equity:
Preferred Stock, (authorized – 20,000,000 shares)		—			—
Series H Convertible Preferred Stock, ($0.0001 par value per share; authorized – 8,500 shares; issued and outstanding – 8 shares as of June 30, 2024, and December 31, 2023, respectively) Liquidation preference of $1 as of June 30, 2024		—			—
Convertible Preferred Stock Series H-3, ($0.0001 par value; authorized – 8,461 shares; issued and outstanding – 1,234 shares as of June 30, 2024, and December 31, 2023, respectively) Liquidation preference of $101 as of June 30, 2024		—			—
Series H-6 Convertible Preferred Stock, ($0.0001 par value per share; authorized – 50,000 shares; issued and outstanding – 50 shares as of June 30, 2024, and December 31, 2023, respectively) Liquidation preference of $487 as of June 30, 2024		—			—
Preferred Stock, value		—			—

Common Stock, ($0.0001 par value; authorized – 200,000,000 shares; issued and outstanding – 6,572,618 and 4,913,907 shares as of June 30, 2024, and December 31, 2023, respectively)		657			492
Additional paid-in capital		124,885,063			129,467,274
Accumulated deficit		(112,054,171	)		(115,330,039	)
Total stockholders’ equity		12,831,549			14,137,727
Total liabilities, mezzanine equity and stockholders’ equity	$	44,996,793		$	52,863,778

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)

	2024			2023			2024			2023
	Three Months Ended June 30,						Six Months Ended June 30,
	2024			2023			2024			2023
Revenue	$	—		$	139,544		$	58,351		$	252,628
Cost of goods sold		1,074,896			332,027			2,258,103			551,820
Gross loss		(1,074,896	)		(192,483	)		(2,199,752	)		(299,192	)

Operating expenses:
Research and development		622,567			2,405,398			1,382,984			4,535,388
Sales and marketing		285,035			420,861			553,390			1,138,953
General and administrative		1,977,358			3,247,731			5,039,684			6,091,047
Total operating expenses		2,884,960			6,073,990			6,976,058			11,765,388

Loss from operations		(3,959,856	)		(6,266,473	)		(9,175,810	)		(12,064,580	)

Other income (expense):
Interest income		140,567			117,278			293,865			261,638
Change in fair value - warrant liability		7,937,500			—			9,010,300			—
Change in fair value - derivative liability		2,618,000			—			2,627,000			—
Unrealized gain on marketable securities		301,921			146,935			266,902			198,215
Realized gain on marketable securities		74,998			8,193			452,121			73,193
Other income (expense), net		(198,510	)		(9,166	)		(198,510	)		52,532
Total other income (expense), net		10,874,476			263,240			12,451,678			585,578
Net income (loss) prior to provision for income taxes	$	6,914,620		$	(6,003,233	)	$	3,275,868		$	(11,479,002	)

Provision for income taxes		—			—			—			—

Net income (loss)	$	6,914,620		$	(6,003,233	)	$	3,275,868		$	(11,479,002	)

Dividends earned on H-7 convertible preferred stock		(546,648	)		—			(998,734	)		—
Accretion of discounts to redemption value of H-7 convertible preferred stock		(1,999,136	)		—			(5,094,609	)		—

Net income (loss) attributable to common stockholders		4,368,836			(6,003,233	)		(2,817,475	)		(11,479,002	)

Net income (loss) per share, basic	$	0.78		$	(1.28	)	$	(0.53	)	$	(2.46	)
Net income (loss) per share, diluted (NOTE 14)	$	0.14		$	(1.28	)	$	(0.53	)	$	(2.46	)

Basic weighted average Common Stock outstanding		5,615,725			4,684,606			5,270,757			4,674,819
Diluted weighted average Common Stock outstanding (NOTE 14)		16,638,755			4,684,606			5,270,757			4,674,819

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

F-2

AYRO, INC. AND SUBSIDIARIES

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

(UNAUDITED)

	Shares			Amount			Shares		Amount		Shares		Amount		Shares		Amount		Shares		Amount		Capital			(Deficit)			Total
	Three and Six Months Ended June 30, 2024
	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, 2024		22,000		$	11,193,939			8	$	—		1,234	$	—		50	$	—		4,913,907	$	492	$	129,467,274		$	(115,330,039	)	$	14,137,727
Stock based compensation		—			—			—		—		—		—		—		—		—		—		12,398			—			12,398
Vested restricted stock		—			—			—		—		—		—		—		—		23,771		2		48,312			—			48,314
Dividends (Accrued Series H-7 Preferred)		—			452,086			—		—		—		—		—		—		—		—		(452,086	)		—			(452,086	)
Accretion of discounts to redemption value of H-7 convertible preferred stock		—			3,095,473			—		—		—		—		—		—		—		—		(3,095,473	)		—			(3,095,473	)
Net Loss		—			—			—		—		—		—		—		—		—		—		—			(3,638,752	)		(3,638,752	)
Balance, March 31, 2024		22,000		$	14,741,498			8	$	-		1,234	$	-		50	$	-		4,937,678	$	494	$	125,980,425		$	(118,968,791	)	$	7,012,128
Stock based compensation		—			—			—		—		—		—		—		—		—		—		(4,319	)		—			(4,319	)
Preferred stock redemptions and conversions including cash premium		(2,667	)		(3,065,973	)		—		—		—		—		—		—		1,634,940		163		1,454,741			—			1,454,904
Deemed dividend		—			—			—		—		—		—		—		—		—		—		(80,553	)		—			(80,553	)
Preferred stock dividends		—			466,095			—		—		—		—		—		—		—		—		(466,095	)		—			(466,095	)
Accretion of discounts to redemption value of H-7 convertible preferred stock		—			1,999,136			—		—		—		—		—		—		—		—		(1,999,136	)		—			(1,999,136	)
Net Income		—			—			—		—		—		—		—		—		—		—		-			6,914,620			6,914,620
Balance, June 30, 2024		19,333		$	14,140,756			8	$	-		1,234	$	-		50	$	-		6,572,618	$	657	$	124,885,063		$	(112,054,171	)	$	12,831,549

	Shares		Amount		Shares		Amount		Shares		Amount		Shares		Amount		Shares		Amount		Capital		(Deficit)			Total
	Three and Six Months Ended June 30, 2023
	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
Balance value		—	$	—		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
Balance value		-	$	-		8	$	-		1,234	$	-		50	$	-		4,692,632	$	469	$	133,736,375	$	(92,648,586	)	$	41,088,258

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

F-3

AYRO, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	2024			2023
	Six Months Ended June 30,
	2024			2023
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$	3,275,868		$	(11,479,002	)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation and amortization		895,627			452,848
Loss on disposal of fixed asset		—			11,666
Stock-based compensation		56,393			508,869
Change in fair value - derivative liability		(2,627,000	)		—
Change in fair value - warrant liability		(9,010,300	)		—
Amortization of right-of-use asset		102,105			81,524
Bad debt expense		76,819			292,010
Unrealized gain on marketable securities		(266,902	)		(198,215	)
Realized gain on marketable securities		(452,121	)		(73,193	)
Impairment of inventory		1,622,609			—
Change in operating assets and liabilities:
Accounts receivable		12,879			113,906
Inventory		(1,704,756	)		(2,079,590	)
Prepaid expenses and other assets		587,476			(1,790,987	)
Deposits and other assets		12,967			—
Accounts payable		1,115,255			(405,979	)
Accrued expenses and other current liabilities		(434,295	)		(234,155	)
Lease obligations - operating leases		(96,690	)		(93,181	)
Net cash used in operating activities		(6,834,066	)		(14,893,479	)

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment		—			(1,271,311	)
Change in marketable securities		(22,153,128	)		(9,343,804	)
Purchase of intangible assets		—			(18,703	)
Net cash used in investing activities		(22,153,128	)		(10,633,818	)

CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of preferred stock redemption (H-7)		(362,573	)		—
Net cash used in financing activities		(362,573	)		—

Net change in cash, cash equivalents and restricted cash		(29,349,767	)		(25,527,297	)

Cash, cash equivalents and restricted cash, beginning of the period		43,440,867			39,096,562

Cash, cash equivalents and restricted cash, end of the period	$	14,091,100		$	13,569,265

Supplemental disclosure of cash and non-cash transactions:
Fixed asset additions included in accounts payable and accrued expenses	$	70,597		$	194,335
Accrual of Series H-7 Convertible Preferred Stock Dividends	$	918,181		$	—
Accretion of discounts to redemption value of H-7 convertible preferred stock	$	5,094,609		$	—
Accrued Series H-7 preferred stock redemption payable	$	1,329,047		$	—
Non-cash redemption of Series H-7 preferred stock	$	1,454,904		$	—
Prepaid insurance financed through accrued expenses	$	286,955		$	—

Supplemental disclosure of restricted cash:
Cash and cash equivalents	$	14,091,100		$	13,569,265
Restricted cash	$	—		$	—
Total cash, cash equivalents and restricted cash	$	14,091,100		$	13,569,265

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 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 subsidiaries, are principally engaged in manufacturing and sales of 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”). Share and per share information for the three and six months ended June 30, 2023, has been retroactively adjusted to reflect the Reverse Stock Split.

Strategic Review

For the past several years, AYRO’s primary supplier for the AYRO 411x 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 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”).

The Company began the design and development of the Vanish in December 2021, including updates to its supply chain, the offshoring/onshoring mix, and its manufacturing strategy. The Company commenced low-rate initial production of the Vanish in the second quarter of 2023 and commenced initial sales and delivery of the Vanish in the third quarter of 2023.

On January 31, 2024, the Company began to implement an internal restructuring to achieve greater efficiency in pursuit of its strategic goals. As part of the restructuring, among other things, the Company eliminated a substantial number of positions at the Company as the Company re-evaluates its sales, marketing and manufacturing functions. Additionally, in connection with its internal restructuring, the Company is working closely with third-party consultants to complete a thorough review of the Vanish to achieve the Company’s objective of lowering the bill of materials (“BOM”) and overall manufacturing expenses, which in turn will reduce the Manufacturer’s Suggested Retail Price (“MSRP”) of the Vanish. The Company expects to provide additional updates regarding such progress in the near term.

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 income of $3,275,868, as a result of the non-cash changes in the warrant liability and the derivative liability, for the six months ended June 30, 2024, and negative cash flow used in operations of $6,834,066 for the six months ended June 30, 2024. On June 30, 2024, the Company had cash and cash equivalent balances totaling $14,091,100, restricted cash of $0 and marketable securities of $22,872,151. In addition, overall working capital decreased by $9,221,604 during the six months ended June 30, 2024. Management believes that the existing cash as of June 30, 2024, will be sufficient to fund operations for at least the next twelve months following the issuance of these unaudited condensed consolidated financial statements.

On July 18, 2024, the Company received a letter from the Listing Qualifications Department of the Nasdaq Stock Market indicating that, based upon the closing bid price of the Company’s common stock for the 30 consecutive business days between June 3, 2024, to July 17, 2024, 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 January 14, 2025, in which to regain compliance pursuant to Nasdaq Listing Rule 5810(c)(3)(A). Delisting could harm the Company’s ability to raise capital through alternative financing sources on terms acceptable to us, or at all, and may result in the potential loss of confidence by investors, suppliers, customers and employees and fewer business development opportunities.

F-5

On August 7, 2023, the Company entered into a Securities Purchase Agreement (the “Series H-7 Purchase Agreement”), pursuant to which it agreed to sell to certain existing investors (the “Series H-7 Investors”) in a private placement (the “Series H-7 Private Placement”) (i) an aggregate of 22,000 shares of the 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 (ii) warrants (the “Series H-7 Investor Warrants”) initially exercisable for up to an aggregate of 2,750,000 shares of common stock. The Company raised gross proceeds of $22,000,000 from the sale, which closed on August 10, 2023 (see Note 9).

The certificate of designations for the Series H-7 Preferred Shares (the “Series H-7 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 Series H-7 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 (“Segregated Cash”), and to use such Segregated Cash solely for the purpose of performing the Company’s monetary obligations to the holders of the Series H-7 Preferred Shares, provided, however, that the Company 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 June 30, 2024, the Company was not in compliance with the restrictive provisions discussed above. The Company has regained compliance subsequent to June 30, 2024.

The Company 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 business, prospects, financial condition, and operating results. 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 raw materials would increase operating costs and could reduce 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.

The Company has made certain indemnities, under which the Company may be required to make payments to an indemnified party, in relation to certain transactions. The Company indemnifies their directors and officers to the maximum extent permitted under the laws of the State of Delaware. In connection with the Company’s facility leases, the Company has indemnified their 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 the Company could be obligated to make. Historically, the Company has not been obligated to make any payments for these obligations and no liabilities have been recorded for these indemnities.

F-6

NOTE 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation and Principles of Consolidation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with GAAP and in conformity with the instructions on Form 10-Q and Rule 8-03 of Regulation S-X and the related rules and regulations of the Securities and Exchange Commission (the “SEC”).

The unaudited condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. The unaudited condensed consolidated financial statements reflect all adjustments consisting of normal recurring accruals, which are, in the opinion of management, necessary for a fair presentation of such statements. The results of operations for the three and six months ended June 30, 2024, are not necessarily indicative of the results that may be expected for the entire year. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the accompanying notes for the fiscal year ended December 31, 2023, which are included in the Company’s Annual Report on Form 10-K, filed with the SEC on April 1, 2024, and amended on April 26, 2024.

Use of Estimates

The preparation of the 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 unaudited consolidated financial statements, and the reported amounts of revenue and expenses during the reporting period.

The Company’s most significant estimates include marketable securities, revenue recognition, fair value measurements of warrant and derivative liabilities, accretion of preferred stock and the measurement of stock-based compensation expenses. Actual results could differ from these estimates.

Restricted Cash

As of June 30, 2024, and December 31, 2023, $0 and $10,000,000, respectively, of cash was restricted in accordance with the Series H-7 Certificate of Designations, see Note 2.

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 Investments—Debt and Equity Securities. 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 $22,872,151 and $0 in marketable securities as of June 30, 2024, and December 31, 2023, respectively.

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 ASC 815.

F-7

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 the Company’s own assumptions about market participant assumptions developed from the best information available to the Company under the circumstances (unobservable inputs). The fair value hierarchy is divided into three levels based on the source of inputs as follows:

	●	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.

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

Warrants and Preferred Shares

The accounting treatment of warrants and preferred share series issued is determined pursuant to the guidance provided by 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 is assessed with determinations made regarding the proper classification in the Company’s unaudited condensed consolidated financial statements.

Redeemable Preferred Stock

Applicable accounting guidance requires an equity instrument that is redeemable for cash or other assets to be classified outside of permanent equity if it is redeemable (a) at a fixed or determinable price on a fixed or determinable date, (b) at the option of the holder, or (c) upon the occurrence of an event that is not solely within the control of the issuer.

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.

F-8

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:

Inventory

Inventory consists of purchased chassis, cabs, batteries, truck beds and component parts which includes cost of raw materials, freight, direct labor, and related production overhead and are stated at the lower of cost or net realizable value, as determined using a first-in, first-out method. Inventory also includes a fleet of internally manufactured vehicles that serve demonstration and other purposes, the balance of which is being depreciated over their useful lives. Management compares the cost of inventory with the net realizable value and, if applicable, an allowance is made for writing down the inventory to its net realizable value, if lower than cost. On an ongoing basis, inventory is reviewed for potential write-down for estimated obsolescence or unmarketable inventory based upon forecasts for future demand and market conditions.

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: the 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, a warranty is not accounted for as a separate performance obligation. The Company’s policy is to exclude taxes collected from a customer from the transaction price of automotive contracts.

Shipping revenue

Amounts billed to customers related to shipping and handling are classified as shipping revenue. The Company has elected to recognize the cost for freight and shipping when control over vehicles has transferred to the customer as an operating expense. The Company has reported shipping expenses of $6,208 and $20,768 for the three months ended June 30, 2024, and 2023, respectively, and $21,699 and $41,334 for the six months ended June 30, 2024, and 2023, respectively, included in General and Administrative Expenses.

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.

Basic and Diluted Income (Loss) Per Share

Basic earnings per share excludes dilution for common stock equivalents and is computed by dividing net income or loss attributable to common stockholders by the weighted average number of shares of common stock outstanding for the period. Diluted EPS is calculated based on the weighted average number of shares of common stock plus the effect of dilutive potential common shares outstanding during the period. Potentially dilutive securities consist of common stock options, restricted stock units, contingently issuable shares and convertible preferred securities. The dilutive effect of stock options, restricted stock units and contingently issuable shares is reflected in diluted EPS by application of the treasury stock method. The dilutive effect of convertible preferred securities is reflected in the diluted EPS by application of the “if-converted” method. The “if-converted” method is only assumed in periods where such application would be dilutive. Basic and diluted net income (loss) per share is determined by dividing income (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 is the same for periods with a net loss. For all periods presented with a net loss, the shares underlying the common stock options and warrants have been excluded from the calculation because their effect would be anti-dilutive. Therefore, the weighted-average shares outstanding used to calculate both basic and diluted loss per share are the same for periods with a net loss.

F-9

Recently Adopted Accounting Pronouncements

In June 2022, the FASB issued ASU 2022-03, Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions (“ASU 2022-03”), which clarifies the guidance in Accounting Standards Codification Topic 820, Fair Value Measurement (“Topic 820”), when measuring the fair value of an equity security subject to contractual restrictions that prohibit the sale of an equity security and introduces new disclosure requirements for equity securities subject to contractual sale restrictions that are measured at fair value in accordance with Topic 820. ASU 2022-03 is effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years, and early adoption is permitted. Management does not believe the adoption of any of these accounting pronouncements has had or will have a material impact on the Company’s unaudited condensed consolidated financial statements.

Recent Accounting Pronouncements

In November 2023, the FASB issued Update 2023-07-Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures which requires disclosure of the title and position of the Chief Operating Decision Maker (“CODM”), an explanation of how the CODM uses the reported measure of segment profit or loss in assessing segment performance and deciding how to allocate resources, and disclosure of significant expenses regularly provided to the CODM that are included within the reported measure of segment profit or loss. The amendments of ASU 2023-07 are effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted and should be applied retrospectively to all periods presented. The Company is currently evaluating the impact of this standard, including timing of adoption.

In December 2023, the FASB issued Update 2023-09-Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which enhances the disclosure requirements for income tax rate reconciliation, domestic and foreign income taxes paid, and unrecognized tax benefits. The amendments of ASU 2023-09 are effective for annual periods beginning after December 15, 2024. Early adoption is permitted and should be applied prospectively. The Company is currently evaluating the impact of this standard, including timing of adoption.

In March 2024, the FASB issued ASU 2024-02, Codification Improvements—Amendments to Remove References to the Concepts Statements, to remove references to various FASB Concepts Statements based on suggestions received from stakeholders on the Accounting Standards Codification and other incremental improvements to GAAP. ASU 2024-02 is effective for fiscal years beginning after December 15, 2024. The Company is currently evaluating the impact that adopting this new accounting standard would have on the Company’s condensed consolidated financial statements.

F-10

NOTE 4. REVENUES

Disaggregation of Revenue

Revenue by type was as follows:

SCHEDULE OF DISAGGREGATION OF REVENUE

	2024		2023		2024		2023
	Three Months Ended June 30,				Six Months Ended June 30,
	2024		2023		2024		2023
Revenue type
Product revenue	$	—	$	127,106	$	37,775	$	247,388
Service Revenue		—		—		18,249		—
Miscellaneous Income		—		—		1,261		9,390
Shipping revenue		—		12,438		1,066		(4,150	)
Total Revenue	$	—	$	139,544	$	58,351	$	252,628

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. The warranty reserve is recorded as a component of cost of revenues in the statement of operations. As of June 30, 2024, and December 31, 2023, warranty reserves were recorded within accrued expenses of $403,778 and $401,440, respectively.

NOTE 5. INVENTORY

Inventory, net of any inventory allowances, consisted of the following:

SCHEDULE OF INVENTORY

	June 30,		December 31,
	2024		2023
Raw materials	$	2,862,305	$	3,252,280
Work-in-progress		251,583		179,702
Finished goods		200,120		-
Total inventory, net	$	3,314,008	$	3,431,982

During the three and six months ended June 30, 2024, depreciation for fleet inventory was $200,120 and $200,120, respectively. There were no vehicles in fleet inventory during the three and six months ended June 30, 2023.

During the three and six months ended June 30, 2024, a $856,361 and $1,622,609 impairment of inventory adjustment was recorded in cost of goods sold, related to the Vanish product. Included in the impairment of inventory adjustment during the three and six months ended June 30, 2024, is $476,340 related to physical inventory stock adjustments. No such adjustments were recognized during the three and six months ended June 30, 2023.

NOTE 6. PREPAID EXPENSES AND OTHER CURRENT ASSETS

	June 30,		December 31,
	2024		2023
Prepayments for inventory	$	1,011,661	$	1,524,831
Prepayments for insurance		306,839		227,945
Prepayments for software		147,088		37,203
Prepaid other		121,673		97,803
Total prepaid expenses and other current assets	$	1,587,261	$	1,887,782

F-11

NOTE 7. PROPERTY AND EQUIPMENT, NET

Property and equipment consisted of the following:

SCHEDULE OF PROPERTY AND EQUIPMENT, NET

	June 30,			December 31,
	2024			2023
Computer and equipment	$	3,800,561		$	3,619,041
Lease improvements		1,094,025			1,094,025
Computer software		226,855			495,295
Furniture and fixtures		395,704			395,703
Property and equipment, gross		5,517,145			5,604,064
Less: Accumulated depreciation		(3,166,084	)		(2,486,900	)
Total property and equipment, net	$	2,351,061		$	3,117,164

Depreciation expense for the three months ended June 30, 2024, and 2023 was $348,571 and $254,160, respectively, and for the six months ended June 30, 2024, and 2023 was $682,537 and $444,966, respectively.

NOTE 8. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

SCHEDULE OF ACCRUED EXPENSES

	June 30,		December 31,
	2024		2023
Accrued professional and consulting fees	$	227,567	$	497,719
Accrued payroll		386,238		575,111
Accrued warranty reserve		403,778		401,440
Accrued expenses other		18,964		77,802
Other current liabilities		472,654		104,469
Total accrued expenses and other current liabilities	$	1,509,201	$	1,656,541

NOTE 9. STOCKHOLDERS’ EQUITY

Common Stock

For the three months ended June 30, 2024, and 2023, the Company issued 1,634,940 shares and 23,568 shares of common stock respectively, upon the preferred stock redemptions and conversions and the vesting of restricted stock.

For the six months ended June 30, 2024, and 2023, the Company issued 1,658,711 shares and 37,426 shares of common stock respectively, upon the preferred stock redemptions and conversions and the vesting of restricted stock.

Series H-7 Preferred Stock

On August 7, 2023, the Company entered into the Series H-7 Purchase Agreement with the Series H-7 Investors, pursuant to which it agreed to sell to the Series H 7 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 Series H-7 Private Placement.

The Series 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 is required to redeem the Series H-7 Preferred Shares in 12 equal monthly installments. On February 9, 2024, the Company filed with the Secretary of State of the State of Delaware a Certificate of Amendment of Certificate of Designations of Series H-7 Convertible Preferred Stock, which became effective upon filing, which amended the commencement of the monthly installment dates, to be between May 7, 2024, and August 7, 2025. The first such installment date was May 7, 2024.

Following the Reverse Stock Split, the Conversion Price for the Series H-7 Preferred Shares was reduced to $2.00 per share pursuant to the terms of the Certificate of Designations. 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 Series H-7 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) $0.744 (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. 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 Series H-7 Certificate of Designations, can elect to accelerate installment conversion amounts.

F-12

The holders of 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 Series H-7 Certificate of Designations. Upon the occurrence and during the continuance of a Triggering Event (as defined in the Series H-7 Certificate of Designations), the Series H-7 Preferred Shares will accrue dividends at the rate of 15% per annum. Upon conversion or redemption, the holders of the Series H-7 Preferred Shares are also entitled to receive 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.

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 Series H-7 Certificate of Designations. Further, the Series H-7 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 Series H-7 Certificate of Designations or Series H-7 Warrants.

The Series H-7 Certificate of Designations includes certain triggering events 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, the Company’s failure to pay any amounts due to the holders of 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 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 Series H-7 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 Series H-7 Certificate of Designations), and 4) variable share-settled installment conversion see Note 13. These features were bundled together, assigned probabilities of being affected and measured at fair value. Subsequent changes in fair value of these features are recognized in the Consolidated Statement of Operations.

As of June 30, 2024, the Company has notified the investors of its intention to redeem the upcoming installments due in cash and recorded a liability of $1,329,047 representing the cash payable to investors which includes $1,100,909 of the stated value of the Series H-7 Preferred Shares, $164,850 of accrued dividends payable, and $63,288 for the cash premium which was recognized as a deemed dividend. During the six months ended June 30, 2024, the Company redeemed a total of 2,667 Series H-7 Preferred Shares for cash equal to $362,573 and issued 1,634,940 shares of Common Stock, elected pursuant to the terms of the Certificate of Designations, worth $1,454,904. During the three and six months ended June 30, 2024, the Company recognized $546,648 and $998,734, respectively, of net preferred dividends which is comprised of $466,095 and $918,181, respectively, of preferred dividends at the stated dividend rate, respectively, and $80,553 and $80,553, respectively, of accrued deemed dividends for cash premium for installment redemptions ultimately settled in shares of Common Stock.

Common Stock Warrants

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)
Outstanding at December 31, 2023		11,605,758			3.42		4.42
Granted		—			—		—
Expired		(19,683	)		58.68		—
Outstanding at June 30, 2024		11,586,075			3.29		3.93

F-13

NOTE 10. STOCK-BASED COMPENSATION

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

SCHEDULE OF STOCK BASED COMPENSATION

	2024			2023			2024		2023
	Three Months Ended June 30,						Six Months Ended June 30,
	2024			2023			2024		2023
Research and development	$	(2,395	)	$	5,034		$	3,810	$	11,798
Sales and marketing		-			(435	)		454		5,489
General and administrative		(1,924	)		237,532			52,129		491,582
Total	$	(4,319	)	$	242,131		$	56,393	$	508,869

Options

The following table reflects a summary of stock option activity:

	Number of Shares			Weighted Average Exercise Price		Contractual Life (Years)
Outstanding at December 31, 2023		38,696		$	90.99		6.53
Forfeitures		(29,358	)		33.68		—
Outstanding at June 30, 2024		9,338		$	314.17		4.66

Of the outstanding options, stock options to purchase up to 9,338 were vested and exercisable as of June 30, 2024. At June 30, 2024, the aggregate intrinsic value of stock options vested and exercisable was $0.

The Company recognized $(4,319) and $11,417 of stock option expense for the three months ended June 30, 2024, and 2023, respectively, and $8,078 and $31,533 of stock option expense for the six months ended June 30, 2024, and 2023, respectively.

Restricted Stock

SCHEDULE OF RESTRICTED STOCK

	Number of Shares			Weighted Average Grant Price
Outstanding at December 31, 2023		36,235		$	4.01
Vested		(23,771	)		6.00
Forfeited		(12,464	)		—
Outstanding at June 30, 2024		—		$	—

The Company recognized compensation expense related to all restricted stock during the three months ended June 30, 2024, and 2023 of $0 and $230,713, respectively, and for the six months ended June 30, 2024, and 2023 of $48,315 and $477,335, respectively.

NOTE 11. CONCENTRATIONS AND CREDIT RISK

Revenues

There were no significant revenue concentrations for the three and six months ended June 30, 2024. One customer accounted for approximately 46% of the Company’s revenues for the three months ended June 30, 2023, and another customer accounted for 35%. Three customers accounted for approximately 42%, 25%, and 20% of the Company’s revenues for the six months ended June 30, 2023.

F-14

Accounts Receivable

There were no significant accounts receivable concentrations for the six months ended June 30, 2024. During the year ended December 31, 2023, the Company’s accounts receivable for four significant customers were approximately 32%, 27%, 12%, and 11%.

Purchasing

There were no significant supplier concentrations for the three and six months ended June 30, 2024. No suppliers accounted for more than 10% of the Company’s raw materials purchased for the three months ended June 30, 2023. During the six months ended June 30, 2023, two suppliers accounted for more than 10% of the Company’s raw materials, one supplier accounted for 15% the other 13%.

NOTE 12. COMMITMENTS AND CONTINGENCIES

Manufacturing Agreements

On July 28, 2022, the Company partnered with 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, the Company may terminate upon written notice within three days of completion of such change in control. On June 21, 2024, the Company notified Linamar of its intention not to renew the Linamar MLA. As a result, the Linamar MLA will terminate in accordance with its terms on July 28, 2025.

Supply Chain Agreements

On November 2, 2023, the Company entered into a supply agreement with Sirris Inc. (“Sirris”), a provider of motor vehicle parts for innovative vehicle types. Sirris has agreed to supply rear and front shocks to support the manufacturing of the Company’s electric vehicle fleet. Sirris is committed to meeting the Company’s upside demand for these products in the event production increases.

On December 21, 2023, the Company entered into a supply agreement with Athena Manufacturing, LP, a provider of customizable sophisticated metal products. As part of the agreement, the Company is able to submit requests for devices, component, component assembly, material part, or piece that is custom to AYRO. This is a non-exclusive agreement in which the Company is able to engage other suppliers for these products.

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.

F-15

On March 23, 2018, DropCar was made aware of an audit being conducted by the New York State Department of Labor (the “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 (non-exempt worker whose workday is longer than ten hours must receive an extra hour of pay at the basic minimum hourly rate). Management believes the case has no merit.

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 a master procurement agreement (the “MPA”) entered into by and among AYRO Operating Company, Inc., the Company’s subsidiary (“AYRO Operating”), and Club Car on March 5, 2019 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.

In February of 2024, Inventus Power, Inc. sued AYRO in the Circuit Court of the Eighteenth Judicial Circuit, County of DuPage, Illinois, alleging that AYRO failed to pay invoices for certain battery packs and related equipment. In April of 2024, AYRO filed counterclaims asserting that the battery packs in question were defective and not in compliance with contractual specifications. In August of 2024, the parties entered into a confidential settlement agreement, pursuant to which they agreed to dismiss with prejudice the claims and counterclaims in this lawsuit. The settlement agreement did not have a material impact on the company’s results of operations or financial condition.

NOTE 13. 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 six months ended June 30, 2024. The carrying amounts of cash equivalents, accounts receivable, other current assets, other assets, accounts payable, and accrued expenses approximated their fair values as of the six months ended June 30, 2024, 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 the Company’s common stock and estimates for the equity volatility and traded volume volatility of the Company’s 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 the Company’s 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 marketable securities and money market accounts represents a Level 1 measurement. 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 as of June 30, 2024, and December 31, 2023, and indicates the fair value hierarchy of the valuation inputs the Company utilized to determine such fair value:

F-16

The following table sets forth a summary of the Company’s assets and liabilities that are measured at fair value on a recurring basis:

			June 30,		December 31,
Description	Level		2024		2023
Assets:
Marketable securities		1	$	22,872,151	$	-
Cash and cash equivalent - money market account		1	$	53,470	$	1,805,597
Liabilities:				-
Warrant liability		3	$	4,309,500	$	13,319,800
Derivative liability		3	$	6,773,000	$	9,400,000

The following table sets forth a summary of the change in the fair value of the warrant liability, which is considered a Level 3 investment, that is measured at fair value on a recurring basis:

	June 30, 2024
Balance on December 31, 2023	$	13,319,800
Change in fair value of warrant liability		(9,010,300	)
Balance on June 30, 2024	$	4,309,500

During the three month and six months ended June 30, 2024, the Company recorded income of $7,937,500 and $9,010,300, respectively, related to the change in fair value of the H-7 Warrant liability which is recorded in other income (expense) on the Statements of Operations. The fair value of the H-7 Warrants of $4,309,500 was estimated at June 30, 2024, utilizing the Black Scholes Model using a stock price of $0.78, an exercise price of $2.00, and the following weighted average assumptions: (i) dividend yield 0%; (ii) remaining term of 4.11 years; (iii) equity volatility of 90.00%; and (iv) a risk-free interest rate of 4.41%.

The following table sets forth a summary of the change in the fair value of the derivative liability, which is considered a Level 3 investment, that is measured at fair value on a recurring basis:

	June 30, 2024
Balance on December 31, 2023	$	9,400,000
Issuance of warrants		-
Change in fair value of derivative liability		(2,627,000	)
Balance on June 30, 2024	$	6,773,000

During the three month and six months ended June 30, 2024, the Company recorded income of approximately $2,618,000 and $2,627,000, respectively, 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 $6,773,000 fair value of the bifurcated embedded derivative at June 30, 2024, using a Monte Carlo simulation model, with the following inputs: (i) estimated equity volatility of 75.0%, (ii) the time to maturity of 0.83 years, (iii) a discounted market interest rate of 6.5%, (iv) dividend rate of 8.0%, (v) a penalty dividend rate of 15.0%, and (vi) probability of default of 7.2%. As of June 30, 2024, the Series H-7 Preferred Shares are convertible into 11,022,274 shares of the Company’s common stock.

F-17

NOTE 14. EARNINGS PER SHARE BASIC AND DILUTIVE

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

	2024		2023		2024		2023
	Three Months Ended June 30,				Six Months Ended June 30,
	2024		2023		2024		2023
Options to purchase Common Stock		9,338		91,553		9,338		91,553
Restricted stock unvested		—		140,063		—		140,063
Restricted stock vested - unissued		—		784		—		784
Warrants outstanding		11,586,075		746,199		11,586,075		746,199
Preferred stock outstanding		—		309		11,023,030		309
Totals		11,595,413		978,908		22,618,443		978,908

The following table presents the calculation of basic and diluted earnings per common share from continuing operations:

	2024		2023			2024			2023
	Three Months Ended June 30,					Six Months Ended June 30,
	2024		2023			2024			2023
Earnings per share - Basic

Net income (loss) attributable to common stockholders	$	4,368,836	$	(6,003,233	)	$	(2,817,475	)	$	(11,479,002	)

Basic weighted average Common Stock outstanding		5,615,725		4,684,606			5,270,757			4,674,819

Net income (loss) per share basic	$	0.78	$	(1.28	)	$	(0.53	)	$	(2.46	)

	Three Months Ended June 30,						Six Months Ended June 30,
	2024			2023			2024			2023
Earnings per share - Diluted

Net income (loss) attributable to common stockholders	$	4,368,836		$	(6,003,233	)	$	(2,817,475	)	$	(11,479,002	)
Add: Accretion of discounts to redemption value of H-7 convertible preferred stock		1,999,136			—			—			—
Less: Change in fair value - derivative liability		(2,618,000	)		—			—			—
Less: Make-whole dividends Series-H-7 convertible preferred stock		(1,494,350	)		—			—			—

Earnings from continuing operations available to common shareholders — Diluted	$	2,255,622		$	(6,003,233	)

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AYRO AYRO Inc