AYRO Inc
For the period ended Jun 30, 2024. Filed Aug 15, 2024.
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A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Jun 30, 2024 · Filed Aug 15, 2024
FABC$1.59+3.9%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2024-03-31; filed 2024-05-15.
0001493152-24-019973
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-Q
Period ended 2024-06-30; filed 2024-08-15.
0001493152-24-032672
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 88 previous paragraphs and 93 current paragraphs.
57 unchanged; 15 reworded; 14 added; 16 removed; 0 previous and 7 current paragraphs rearranged.
Tables are not compared: 7 previous and 8 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (14)
Current report
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).
Current report
There is no assurance that we will maintain compliance with such minimum listing requirements. If Nasdaq delists our common stock from trading on its exchange for failure to meet the listing standards, an investor would likely find it significantly more difficult to dispose of or obtain our shares, and our ability raise future capital through the sale of our shares could be severely limited. Delisting could also have other negative results, including the potential loss of confidence by employees, the loss of institutional investor interest and fewer business development opportunities.
Current report
On January 31, 2024, the Company began implementing an internal restructuring to achieve greater efficiency in pursuit of its strategic goals. As part of the Company’s internal restructuring, among other things, the Company eliminated a substantial number of positions at the Company, which may impact its financial position and results of operations, as the Company re-evaluates its sales, marketing, and manufacturing functions. In connection with the restructuring, the Company began working closely with consultants to complete a thorough review of its new 411 fleet vehicle model year 2023 refresh, the Vanish (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.
Current report
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.
Current report
Cost of goods increased by $0.74 million, or 224% for the three months ended June 30, 2024, as compared to the same period in 2023, after an increase of $0.84 million in inventory adjustments to better reflect current inventory, this was offset by a decrease in materials of $0.11 million due to a decrease in sales.
Current report
Sales and marketing expense was $0.29 million for the three months ended June 30, 2024, as compared to $0.42 million for the same period in 2023, a decrease of $0.13 million, or 32%.
Current report
Six months ended June 30, 2024, compared to six months ended June 30, 2023
Current report
Cost of goods increased by $1.71 million, or 309% for the six months ended June 30, 2024, as compared to the same period in 2023, primarily due to an increase of $1.62 million in inventory adjustments to more accurately reflect current inventory, and an increase in freight charges of $0.1 million bringing inventory materials into the Company’s warehouse from outside vendors and this was offset by a decrease in materials of $0.15 million due to a decrease in sales.
Current report
Research and development expense
Current report
Research and development (“R&D”) expense was $1.38 million for the six months ended June 30, 2024, as compared to $4.54 million for the same period in 2023, a decrease of $3.15 million, or 70%. The Company had a decrease of $1.97 million in R&D design costs. The decrease was primarily due to the Company being substantially complete with the R&D on the Vanish at the end of 2023, offset by re-engineering work and design changes in the current year associated with the internal restructuring.
Current report
Sales and marketing expense
Current report
General and administrative expenses
Current report
Other income and expense
Current report
During the six months ended June 30, 2024, we used cash of $0.36 million from financing activities as compared to $0.0 million of cash used in investing activities during 2023, an increase of $0.36 million. The net decrease in cash used was due to redemptions of the Series H-7 preferred stock.
Removed paragraphs (16)
Previous report
On January 31, 2024, we began implementing internal restructuring measures in order to achieve greater efficiency in pursuit of our strategic goals. As part of this internal restructuring, amongst other things, we eliminated a substantial number of positions as we re-evaluate our sales, marketing and manufacturing functions. As of April 30, 2024, following the internal restructuring, we have 14 full-time employees. As of the date of this filing, our internal restructuring measures continue to be ongoing.
Previous report
In 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.
Previous report
Under the Linamar MLA, we must commit to certain minimum purchases, to be determined by AYRO on a quarterly basis.
Previous report
We import the Products from Linamar located 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 are from North American and European sources.
Previous report
Club Car MPA Termination
Previous report
The majority of our sales have historically been comprised of sales to Club Car pursuant to a master procurement agreement (the “MPA”) entered into by and among AYRO Operating Company, Inc., our subsidiary (“AYRO Operating”), and Club Car on March 5, 2019. The MPA granted Club Car the exclusive right to sell the AYRO 411 Fleet in North America, provided that Club Car ordered at least 500 vehicles per year. Club Car did not meet this volume threshold for 2020, 2021 or 2022. Pursuant to the MPA, AYRO 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. AYRO Operating also agreed to collaborate with Club Car on new products similar to 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.
Previous report
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 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. The loss of Club Car as a customer could have a material adverse effect on our sales, financial condition, and results of operations.
Previous report
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 AYRO 411x and will be directly integrated with the Vanish. 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.
Previous report
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.
Previous report
Master Procurement Agreement
Previous report
In March 2019, we entered into the MPA with Club Car. In partnership with Club Car and in interaction with its dealer network, we 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. Substantially all of our 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 we intend to replace Club Car with new business partners for selling our products beginning with the Vanish. The loss of Club Car as a customer could have a material adverse effect on our sales, financial condition, and results of operations.
Previous report
Revenue
Previous report
During the three months ended March 31, 2024, a $766,248 impairment of inventory related to the Vanish and overhead costs that we had in inventory sourced from Canada was recorded in cost of goods sold.
Previous report
Revenue
Previous report
Cost of goods increased by $0.96 million, or 438% for the three months ended March 31, 2024, as compared to the same period in 2023, corresponding with the decrease in vehicle sales and an increase in expenses related to the net realizable value adjustment to inventory and write down of capitalized overhead expenses for $0.7 million.
Previous report
During the three months ended March 31, 2024, and 2023, we had no financing activities of note.
Reworded paragraphs (15)
Previous wording
On July 28, 2022, we 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, we may terminate upon written notice within three days of completion of such change in control.
Current wording
On July 28, 2022, we 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. 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.
Previous wording
During the three months ended March 31, 2024, we recorded an impairment of inventory adjustment of $766,248 that was recorded in cost of goods sold, related to the Vanish.
Current wording
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.
Previous wording
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 have also derived rental revenue from vehicle revenue sharing agreements with tourist destination fleet operators, and, to a lesser extent, shipping, parts, and service fees. Provided that all other revenue recognition criteria has 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, 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.
Current wording
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 have also derived rental revenue from vehicle revenue sharing agreements with 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, 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.
Previous wording
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.
Current wording
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. The 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.
Previous wording
Revenue was $0.06 million for the three months ended March 31, 2024, as compared to $0.11 million for the same period in 2023, a decrease of 48.4%, or $0.05 million. The decrease in revenue was the result of a reduction in sales.
Current wording
Revenue was $0.0 million for the three months ended June 30, 2024, as compared to $0.14 million for the same period in 2023, a decrease of 100% or $0.14 million. The decrease in revenue was the result of a reduction in sales.
Previous wording
Research and development (“R&D”) expense was $0.76 million for the three months ended March 31, 2024, as compared to $2.13 million for the same period in 2023, a decrease of $1.37 million, or 64%. The decrease was primarily due to the Company substantially completing the R&D on the Vanish at the end of 2023. The Company had a decrease of $1.3 million in R&D design costs as a result of the Company substantially completing the R&D on the Vanish at the end of 2023.
Current wording
Research and development (“R&D”) expense was $0.62 million for the three months ended June 30, 2024, as compared to $2.41 million for the same period in 2023, a decrease of $1.78 million, or 74%. The Company had a decrease of $1.8 million in R&D design costs. The decrease was primarily due to the Company being substantially complete with the R&D on the Vanish at the end of 2023, offset by re-engineering work and design changes in the current year associated with the internal restructuring.
Previous wording
We recorded a $1.25 million increase of net other income from a $0.01 million increase in interest income on cash accounts, an increase in realized gains of $0.34 million on marketable securities, these were offset by decreases of $0.09 million in the unrealized gain (loss) on marketable securities and other income, net decreasing by $0.06 million.
Current wording
We recorded a $10.61 million increase of net other income from a $0.02 million increase in interest income on cash accounts, an increase in realized gains of $0.07 million on marketable securities and an increase of $0.15 million in the unrealized gain on marketable securities, these were offset by other income (expense) decreasing by $0.19 million.
Previous wording
The Company recognized a de minimis gain for the change in fair value - derivative liability for the three months ended March 31, 2024. The gain was primarily due to the increase in the fair value of the derivative liability associated with the Series H-7 Preferred Shares that were issued in 2023.
Current wording
The Company recognized a gain of $2.62 million for the change in fair value - derivative liability for the three months ended June 30, 2024. The gain was primarily due to the decrease in the fair value of the derivative liability associated with the Series H-7 Preferred Shares that were issued in 2023. The decrease was a result of a decrease in the Company’s stock price.
Previous wording
The Company recognized a gain of $1.07 million for the change in fair value - warrant liability for the three months ended March 31, 2024. The gain was primarily due to the decrease in the stock price and the increase in the risk free rate.
Current wording
The Company recognized a gain of $7.94 million for the change in fair value - warrant liability for the three months ended June 30, 2024. The gain was primarily due to the decrease in the stock price and the increase in the risk-free rate.
Previous wording
Sales and marketing expense was $0.27 million for the three months ended March 31, 2024, as compared to $0.72 million for the same period in 2023, a decrease of $0.45 million, or 63%. Salaries and related expenses decreased by $0.11 million due to the reduction of our sales and marketing resources. Bad debt expense decreased by $0.22 million due to winding down our relationship with Club Car in the prior year. The remaining decrease of $0.12 million is related to the our internal restructuring of the Company measures commencing in January 2024.
Current wording
Sales and marketing expense was $0.55 million for the six months ended June 30, 2024, as compared to $1.14 million for the same period in 2023, a decrease of $0.59 million, or 51%. Salaries and related expenses decreased by $0.32 million due to the reduction of our sales and marketing resources.
Previous wording
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 $3.06 million for the three months ended March 31, 2024, compared to $2.84 million for the same period in 2023, an increase of $0.22 million, or 7.7%. Salaries and related expenses decreased by $0.22 million, primarily due to decreased headcount. This decrease was offset by an increase in consultancy-related services of $0.38 million.
Current wording
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 $5.04 million for the six months ended June 30, 2024, compared to $6.09 million for the same period in 2023, a decrease of $1.05 million, or 17%. Salaries and related expenses decreased by $1.35 million, primarily due to decreased headcount. This decrease was partially offset by an increase in consultancy-related services of $0.71 million.
Previous wording
As of March 31, 2024, we had $5.46 million in cash cand cash equivalents, $10 million in restricted cash, $23.64 million in marketable securities and working capital of $40.30 million. As of December 31, 2023, we had $33.44 million in cash and cash equivalents and working capital of $44.67 million, including $10 million in restricted cash. The decrease in cash and cash equivalents and working capital was primarily a result of our operating loss and the Company’s internal restructuring. Our sources of cash since inception have been predominately from the sale of equity and debt.
Current wording
As of June 30, 2024, we had $14.09 million in cash cand cash equivalents, $0 million in restricted cash, $22.87 million in marketable securities and working capital of $35.45 million. As of December 31, 2023, we had $33.44 million in cash and cash equivalents and working capital of $44.67 million, including $10 million in restricted cash. The decrease in cash and cash equivalents and working capital was primarily a result of our operating loss and the Company’s internal restructuring. Our sources of cash since inception have been predominately from the sale of equity and debt.
Previous wording
During the three months ended March 31, 2024, we used $4.68 million in cash in operating activities, a decrease in use of $1.85 million compared to the cash used in operating activities of $6.54 million during the same period in 2023. The decrease in cash used in operating activities was primarily a result of the decrease in our operating loss as the Company proceeds with the internal restructuring.
Current wording
During the six months ended June 30, 2024, we used $6.83 million in cash in operating activities, a decrease in use of $8.06 million compared to the cash used in operating activities of $14.89 million during the same period in 2023. The decrease in cash used in operating activities was primarily a result of the decrease in our operating loss as the Company proceeds with the internal restructuring.
Previous wording
During the three months ended March 31, 2024, we used cash of $23.3 million from investing activities as compared to $0.57 million of cash used in investing activities during 2023, an increase of $22.73 million. The net increase was primarily due to our investment in marketable securities of $23.3 million for the three months ended March 31, 2024.
Current wording
During the six months ended June 30, 2024, we used cash of $22.15 million from investing activities as compared to $10.6 million of cash used in investing activities during 2023, an increase of $11.52 million. The net increase in cash used was primarily due to our investment in marketable securities of $22.2 million for the six months ended June 30, 2024.
Previous wording
Currently, the Company is experiencing supply chain shortages, including with respect to lithium-ion battery cells, integrated circuits, vehicle control chips, and displays. 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. Additionally, the emergence and effects of public health crises, such as endemics and epidemics and the consequences of the ongoing war between Russia and Ukraine and between Israel and Hamas, including related sanctions and countermeasures, are difficult to predict, and could adversely impact geopolitical and macroeconomic conditions, the global economy, and contribute to increased market volatility, which may in turn adversely affect our business and operations.
Current wording
Currently, the Company is experiencing supply chain shortages, including with respect to lithium-ion battery cells, integrated circuits, vehicle control chips, and displays. 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. Additionally, the emergence and effects of public health crises, such as pandemics and epidemics and the consequences of the ongoing war between Russia and Ukraine and between Israel and Hamas, including related sanctions and countermeasures, are difficult to predict, and could adversely impact geopolitical and macroeconomic conditions, the global economy, and contribute to increased market volatility, which may in turn adversely affect our business and operations.
Rearranged current paragraphs (7)
Current report — wording carried from elsewhere
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 $1.98 million for the three months ended June 30, 2024, compared to $3.25 million for the same period in 2023, a decrease of $1.27 million, or 39%. Salaries and related expenses decreased by $1.12 million, primarily due to decreased headcount.
Current report — wording carried from elsewhere
The following table sets forth our results of operations for each of the periods set forth below:
Current report — wording carried from elsewhere
Revenue was $0.06 million for the six months ended June 30, 2024, as compared to $0.25 million for the same period in 2023, a decrease of 77%, or $0.19 million. The decrease in revenue was the result of a reduction in sales.
Current report — wording carried from elsewhere
Cost of goods sold and gross loss
Current report — wording carried from elsewhere
We recorded a $11.87 million increase of net other income from a $0.03 million increase in interest income on cash accounts, an increase in realized gains of $0.38 million on marketable securities, and an increase of $0.07 million in the unrealized gain on marketable securities and other income, these were offset by other income (expense) decreasing by $0.25 million.
Current report — wording carried from elsewhere
The Company recognized a gain of $2.63 million for the change in fair value - derivative liability for the six months ended June 30, 2024. The gain was primarily due to the decrease in the fair value of the derivative liability associated with the Series H-7 Preferred Shares that were issued in 2023. The decrease was a result of a decrease in the Company’s stock price.
Current report — wording carried from elsewhere
The Company recognized a gain of $9.01 million for the change in fair value - warrant liability for the six months ended June 30, 2024. The gain was primarily due to the decrease in the stock price and the increase in the risk-free rate.