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

This Annual Report on Form 10-K (the “Annual Report”) contains forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. AllForward-looking statements contained in this Annual Reportmay be identified by the use of forward-looking terms such as “anticipates,” “assumes,” “believes,” “can,” “could,” “estimates,” “expects,” “forecasts,” “guides,” “intends,” “is confident that,” “may,” “plans,” “seeks,” “projects,” “targets,” and “would” or the negative of such terms or other variations on Form 10-Ksuch terms or comparable terminology. Such forward-looking statements include, but are not limited to, future financial and operating results, the company’s plans, objectives, expectations and intentions and other than statements ofthat are not historical fact, including statements regarding our future results of operations and financial position, our business strategy and plans, and our objectives for future operations, are forward-looking statements. The words "believe," "may," "will," "estimate," "continue," "anticipate," "intend," "expect," and similar expressions are intended to identify forward-looking statements.facts. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition, and results of operations, business strategy, short-term and long-term business operations and objectives, and financial needs.operations. These forward-looking statements speak only as of the date of this Annual Report on Form 10-K and are subject to a number of risks, uncertainties, and assumptions including those described in Part I, Item 1A, "Risk Factors" in this Annual Report on Form 10-K. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, maythat could cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertaintiesour historical experience and assumptions,our present expectations, or projections described under the future events and trends discussedsection in this Annual Report on Form 10-K may not occurentitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

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

For a more detailed discussion of these and other factors that may affect our business and that could cause the actual results to differ materially from those anticipatedprojected in these forward-looking statements, see the risk factors and uncertainties set forth in Part I, Item 1A of this Annual Report on Form 10-K. Any one or implied in themore of these uncertainties, risks and other influences could materially affect our results of operations and whether forward-looking statements.

PART I

ITEM 1. BUSINESS.

On May 28, 2020, pursuant to place undue reliance on such forward-looking statements.

Overview

Prior to the Merger, DropCar provided consumer and enterprise solutions to urban automobile-related logistical challenges. Following the Merger, we design and manufacture compact, sustainable electric vehicles for closed campus mobility, urban and community transport, local on-demand and last mile delivery, and government use. Our four-wheeled purpose-built electric vehicles are geared toward commercial customers including universities, business and medical campuses, last mile delivery services and food service providers. We are currently designing our next generation three-wheeled vehicle to support the above-listed markets.

Products

AYRO vehicles provide the end user an environmentally friendly alternative to internal combustion engine vehicles (cars powered by gasoline or diesel oil), for light duty uses, including low-speed logistics, maintenance and cargo services, at a lower total cost.

AYRO Club Car 411

The AYRO Club Car 411 (the “AYRO Merger Agreement”411 Fleet”) is a family of electric, four-wheel compact, light-duty utility trucks sold exclusively through our contracted partner, Club Car, as part of a global multi-year sustainability solution development, sales and marketing agreement. Each of the AYRO 411 Fleet of vehicles is classified as a street legal low-speed vehicle (“LSV”), defined as a four-wheeled motor vehicle, other than an all-terrain vehicle, that is capable of reaching speeds of at least 20 miles per hour (“mph”) but not greater than 25 mph, with a gross vehicle weight rating of less than 3,000 pounds and meets the safety standards in Title 49 of the U.S. Code of Federal Regulations, section 571.50.

The AYRO 411 Fleet has an expected range of up to 50 miles and a maximum speed range of 25 mph (or 40 kilometers per hour), in line with the United States Department of Transportation (“USDOT”) regulations for low-speed vehicles and with most state statutes, which typically limit the speed of LSVs to 25 mph on 35 mph posted roads. The current AYRO 411 Fleet includes:

The AYRO 411 Fleet has zero gas emissions, a recharge capability of up to six to eight hours using 120V/20A outlets and a payload capacity of up to 1,100 pounds. We estimate that the AYRO 411 Fleet’s operating costs are approximately 50% lower per year compared to similarly sized gas-powered trucks/vans. Vehicles in the AYRO 411 Fleet are equipped with:

With its low speed, zero-emissions, and cost-effectiveness, the AYRO 411 Fleet seeks to satisfy the needs of a variety of customers, including university and college campuses, retailers, airports and ports, business parks and campuses, warehouses, production facilities, resorts and theme parks, apartments and condos. We are currently working with our supply chain to add enhancements to the AYRO 411, initially designated the “AYRO 411x,” which is expected to be released in the second quarter of 2021.

Three-Wheeled Electric Vehicle Product Offerings

In addition to the AYRO 411 Fleet, we previously manufactured and sold the AYRO 311 Autocycle, a compact, three-wheeled electric vehicle (the “AYRO 311”). As the AYRO 311 was nearing end-of-life, on August 17, 2020 we sold our remaining AYRO 311 Fleet inventory to a third party for $0.12 million (the “311 Fleet Sale”). Upon such sale, we sustained a loss on disposal of $0.3 million. Subsequent to the 311 Fleet Sale, on February 12, 2021, we entered into an agreement with Arcimoto, Inc. to settle certain patent infringement claims (the “Arcimoto Settlement”), pursuant to which we agreed to cease the production, importation and sale of the AYRO 311, among other matters,things. Accordingly, we would not be contractually permitted to resume production of the AYRO 311. We are continuing the development of an all-new, three-wheeled electric vehicle, which we intend to replace the AYRO 311 as our three-wheeled electric vehicle product offering. We expect to begin manufacturing our next generation three-wheeled vehicle in the first half of 2022.

Additional Models and subjectVehicles

We continue to invest in expanding our existing all-electric vehicle technologies, integrations and vertical market solutions, in addition to growing our fleet of purpose-engineered vehicles and services.

We are currently engineering an all-electric, purpose-built e-delivery vehicle. There are a number of design elements associated with the e-vehicle, configurable/powered e-modules and range of integrated contextual data exchanges and services.

We are also currently in discussions with Club Car regarding a variety of new models and vehicles.

Manufacturing and Supply Chain

Manufacturing Agreement with Cenntro

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

Under our Manufacturing License Agreement with Cenntro (the “MLA”), in order for us to maintain our exclusive territorial rights pursuant to the satisfaction or waiverMLA, for the first three years after the effective date of March 22, 2020, we must meet the following minimum purchase requirements, which we believe we satisfied for the initial period: (i) a minimum of 300 units sold by the first anniversary of the conditions set fortheffective date of the MLA; (ii) a minimum of 800 units sold by the second anniversary of the effective date of the MLA; and (iii) a minimum of 1,300 units sold by the third anniversary of the effective date of the MLA. Cenntro will determine the minimum sale requirements for the years thereafter. Should any event of default occur, the other party may terminate the MLA by providing written notice to the defaulting party, who will have 90 days from the effective date of the notice to cure the default. Unless waived by the party providing notice, a failure to cure the default(s) within the 90-day time frame will result in the automatic termination of the MLA. Events of default under the MLA include a failure to make a required payment when due, the insolvency or bankruptcy of either party, the subjection of either party’s property to any levy, seizure, general assignment for the benefit of creditors, and a failure to make available or deliver the products in the time and manner provided for in the MLA.

Cenntro was also used to perform sub-assembly manufacturing of the AYRO 311. We import semi-knocked-down vehicle kits from Cenntro for the 411 model. We are no longer manufacturing and selling the AYRO 311 as we continue to develop our next generation three-wheeled vehicle. The vehicle kits are received through shipping containers by our assembly facility in Round Rock, Texas. The vehicles are then assembled with limited customization requirements per order. As such, the partnership with Cenntro allows us to scale manufacturing operations without significant investment in capital expenditures, and therefore bring products to market rapidly.

Final Assembly

For final assembly of the 411, we currently occupy 24,000 square feet of office and manufacturing space configured in a “U”-shaped assembly line with multiple stations per vehicle. The chart below indicates the number of vehicles and assembly time required for each. Assembly time also includes USDOT quality checks and testing as the final step of the assembly process. Additionally, the number of vehicles indicated below assumes a single shift.

*This capacity would decline if we begin production of future vehicle models.

Master Procurement Agreement with Club Car

In March 2019, we entered into a five-year Master Procurement Agreement (the “MPA”) with Club Car for the sale of our four-wheeled vehicles. The MPA granted Club Car the exclusive right to sell our four-wheeled vehicles in North America, provided that Club Car orders at least 500 vehicles per year.

Although Club Car did not meet the volume threshold for 2020, we currently have no intention of selling our four-wheeled vehicles other than exclusively through Club Car. Under the terms of the MPA, we receive orders from Club Car dealers for vehicles of specific configurations, and we invoice Club Car once the vehicle has shipped. The MPA has an initial term of five (5) years commencing January 1, 2019 and may be renewed by Club Car for successive one-year periods upon 60 days’ prior written notice. Pursuant to the MPA, we granted Club Car a right of first refusal for sales of 51% or more of AYRO Operating’s assets or equity interests, which right of first refusal is exercisable for a period of 45 days following delivery of an acquisition notice to Club Car. We also agreed to collaborate with Club Car on new products similar to its four-wheeled vehicle 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. We are currently engaged in discussions with Club Car to develop additional products to be sold by Club Car in Europe and Asia but there can be no assurance that these discussions will be successful.

Manufacturing Services Agreement with Karma

On September 25, 2020, we entered into a Master Manufacturing Services Agreement (the “Karma Agreement”) with Karma Automotive LLC (“Karma”), pursuant to which Karma agreed to provide certain manufacturing services for the production of our vehicles. The initial statement of work provides that Karma will perform assembly of a certain quantity of the AYRO 411 vehicles and provide testing, materials management and outbound logistics services. For such services in the initial statement of work, we agreed to pay $1.2 million to Karma, of which (i) $0.52 million was paid at closing and (ii) $0.64 million is due and payable five months following the satisfaction of certain production requirements.

The Karma Agreement expires (i) 12 months from the start of volume production of the vehicles or (ii) such earlier time as the parties mutually agree in writing. In addition, Karma, in its sole discretion, may terminate the Karma Agreement at any time, without cause, upon twelve months’ prior written notice. We may terminate the Karma Agreement, without cause, upon six months’ prior written notice.

Supply Agreement with Gallery Carts

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

The configurable Powered Vendor Box, in the rear of the vehicle, features long-life lithium batteries that power the preconfigured hot/cold beverage and food equipment and is directly integrated with the Club Car 411. 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 mobile electric vehicles as customers increasingly want food, beverages and merchandise delivered to where they are gathering. For example, a recent study conducted by Technomic found that a large majority of students, 77%, desired alternative mobile and to-go food options on campus.

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

Strategic Partnership with Autonomic

Additionally, we are developing a technology platform that can be deployed to any vehicle as additional value-add subscriptions offered directly to the end customer. We have partnered with Autonomic, a wholly owned subsidiary of Ford Smart Mobility LLC, to collect vehicle health, use and location information (telematics) in its transportation mobility cloud and produce purpose-built information back to us, customers and fleet operators, generating an additional revenue stream. Working together, the companies aim to develop a range of services to enable mobility applications for our line of vehicles which power everything from moving products and equipment to people and last-mile delivery services.

Business Strategy

Our goal is to continue to develop and commercialize automotive-grade, sustainable electric transportation solutions for the markets and use cases that we believe can be well served by our purpose-built, street legal and road-ready electric vehicles. Our business strategy includes the following:

Trends Driving the Need for Electric Vehicles

The U.S. electric vehicle market is expected by many commentators to increase dramatically over the next decade, driven by factors such as the country’s increasingly urbanized population, the significant cost of owning and operating gas-powered vehicles, the growing global awareness of the damaging effects of pollution and greenhouse gas emissions, and rising investment in clean technology and supporting infrastructure.

A segment of the electric vehicle market, low speed electric vehicles (“LSEVs”)—which are LSVs but cannot be powered by gas or diesel fuel—are growing increasingly popular as eco-friendly options for consumers and commercial entities. LSEVs run on electric motors fueled by a variety of different batteries, such as lithium ion, molten salt, zinc-air and various nickel-based designs.

In 2017, the global LSEV market was valued at approximately $2.4 billion, according to Allied Market Research, and global sales of LSEVs have only continued to grow over the past two years, with sales expected to reach 1.5 million units in 2021. According to the Low Speed Electric Vehicles Market report conducted by Market Study Report, over the next five years, the LSEV market is expected to register a 10.8% compound annual growth rate in terms of revenue, with the global market size expected to reach $8.9 billion by 2024, up from $4.8 billion in 2019.

Trends such as increasingly stringent government regulations aimed toward reducing vehicle emissions, growing urban populations, and social pressure to adopt sustainable lifestyles all create a demand for more ecologically and economically sustainable methods of transportation. This demand continues to spur technological advancements and LSEV market growth.

Incentivizing Effect of Government Rules and Regulations. Expanding rules and regulations governing vehicle emissions have contributed to growth in the LSEV market. In particular, the U.S., Germany, France, and China have implemented stringent laws and regulations governing vehicular emissions, requiring automobile manufacturers to use advanced technologies to combat high-emission levels in vehicles. To incentivize clean-energy use, many governments are increasingly instituting substantial incentives for consumers to purchase electric vehicles, such as:

Further, governments are establishing infrastructure benchmarks to support the growth of the electric vehicle industry.

A prime example of government involvement in developing the electric vehicle industry, a recent New Jersey bill aims to have 330,000 electric vehicles on state roads by the end of 2024 and a total of 2.0 million by 2035. To facilitate this goal, the bill calls for the state to have 400 fast-charging stations and another 1,000 slow-charging stations, both by 2025. Thirty percent of all apartment, condo and townhouse developments in New Jersey would need to have chargers by 2030, while half of all franchise hotels would need to have chargers by 2050. As the network of government rules and regulations expands, so too should investment in the research and development of LSEV technology and infrastructure.

Urbanization on the Rise. According to the U.N., in 2015, 55% of the world’s population was urban, and by 2050, it is estimated that this percentage will increase to 68%. As the world population continues to urbanize, a growing number of consumers are expected to seek alternatives, such as LSEVs, to internal combustion engine vehicles in order to save money and space in congested city streets.

Increasing Sense of Social Responsibility. In tandem with governmental efforts to curb pollution and encourage more sustainable transportation practices, consumers face increasing social pressure to adopt eco-friendly lifestyles. As this demand grows, the LSEV market should continue to develop.

Competition and Market Opportunities

The worldwide automotive market, particularly for economy and alternative fuel vehicles, is highly competitive, and we expect it will become even more so in the future. Other manufacturers have entered the three- and four-wheeled vehicle markets, and we expect additional competitors to enter this market within the next several years. As the LSEV market grows increasingly saturated, we expect to experience significant competition. The most competitive companies in the global LSEV market include HDK Electric Vehicles, Bradshaw Electric Vehicles, Textron Inc., Polaris Industries, Yamaha Motors Co. Ltd., Ingersoll Rand, Inc., Speedway Electric, AGT Electric Cars, Bintelli Electric Vehicles and Ligier Group. Our relationship with Club Car, a division of Ingersoll Rand, Inc., gives us a strong competitive advantage. Despite this fact, many of the other competitors listed above have significantly greater financial, technical, manufacturing, marketing and other resources than us and may be able to devote greater resources to the design, development, manufacturing, distribution, promotion, sale and support of their products. Many of these competitors modify an existing fossil-fuel powered golf cart to meet utility and commercial needs for an all-electric commercial utility vehicle, unlike the AYRO 411 Fleet, which was engineered, designed and produced as a portfolio of electric, light duty trucks and vans.

When compared to internal combustion engine vehicles, our vehicles are significantly more attractive based on tax, title and license fees and CO2 emissions. Compared to a standard Ford F150 (gasoline) pickup truck (2.7 liter), the AYRO 411 Fleet provides an approximate 49% reduction in operating expenses and an approximate 100% reduction in CO2 emissions (if renewed energy is used to charge the AYRO vehicles, an increasing trend for most higher education campuses and government facilities).

Our most closely-matched competitor in the LSEV industry is Polaris Gem (“Gem”), an LSEV manufacturer that manufactures products designed for applications similar to ours. Gem offers three passenger vehicle models and two utility vehicle models. Although Gem’s GEM el XD model, which is similar to vehicles in the AYRO 411 Fleet, has a lower starting MSRP than the AYRO 411 Fleet, the GEM el XD would need to be highly configured to match the standard AYRO 411 Fleet features and, with such configuration, would exceed the base MSRP of each vehicle in the AYRO 411 Fleet. The AYRO 411 Fleet has a greater pick-up bed and van box capacity that the GEM el XD, in addition to 13% more horsepower and a 48% better turning radius, allowing drivers of the AYRO 411 Fleet to execute maneuvers in tighter spaces than they would using the GEM el XD.

We expect competition in our industry to intensify in the future in light of increased demand for alternative fuel vehicles, continuing globalization and consolidation in the worldwide automotive industry. Factors affecting competition include product quality and features, innovation and development time, pricing, reliability, safety, customer service and financing terms. Increased competition may lead to lower vehicle unit sales and increased inventory, which may result in downward price pressure and may adversely affect our business, financial condition, operating results and prospects. Our ability to successfully compete in our industry will be fundamental to our future success in existing and new markets and our market share. There can be no assurances that we will be able to compete successfully in our markets. If our competitors introduce new cars or services that compete with or surpass the quality, price or performance of our vehicles or services, we may be unable to satisfy existing customers or attract new customers at the prices and levels that would allow us to generate attractive rates of return on our investment. Increased competition could result in price reductions and revenue shortfalls, loss of customers and loss of market share, which could harm our business, prospects, financial condition and operating results.

Target Markets

The multipurpose applications and clean energy use of LSEVs make them popular across a wide array of industries and customers, including college and university campuses, resorts and hotels, corporate parks, hospitals, warehouses, individual consumers, last mile delivery service providers, municipalities, and the food service industry. A number of these market segments, and our competitive position within them, are discussed in greater detail below.

Universities. LSEVs are growing increasingly common on university and college campuses due to a number of factors. LSEVs fulfil the versatile needs of campuses better than golf carts or standard combustion vehicles because, not only does LSEVs’ low speed threshold promote safer driving among pedestrians, the vehicles are also street legal with on-road safety features, enabling drivers to drive on roads and free up pedestrian space along sidewalks and smaller pathways. Additionally, the significantly reduced carbon imprint of LSEVs compared to internal combustion engine vehicles appeal to environmentally aware students and professors looking to promote environmental sustainability on campus. By transitioning from internal combustion engine vehicles to LSEVs, campuses should be able to reduce significantly the costs spent on fuel, oil, parts, and maintenance. Our AYRO 411 Fleet provides all of these benefits to university and college campuses. We estimate that in the U.S., there are over 1,800 higher education campuses with over 10,000 students each with over 400 on-campus vehicles that are ideal targets for the AYRO 411 Fleet as campuses transition from fossil-fueled campus fleet vehicles to EVs.

Food Delivery Services. As the millennial generation assumes a more substantial portion of the consumer population, customers increasingly favor convenience and timeliness, spurring dramatic growth in online ordering and delivery services across a wide swath of industries, including food delivery and restaurant ordering services. Food delivery sales are anticipated to increase over 20% per year, culminating in an expected $365 billion worldwide by 2030, according to Upserve. Upserve further estimates that approximately 60% of U.S. consumers report that they order delivery or takeout at least once a week. Within the next decade, potentially over 40% of restaurant sales will be attributable to delivery services, according to Morgan Stanley. In our market research, we have determined that delivery services, including restaurants using the next generation three-wheeled vehicle as a delivery vehicle rather than outsourcing delivery to third party services, would reduce their delivery costs by up to 50%. Delivery service companies using our next generation three-wheeled vehicle as an in-house delivery vehicle rather than outsourcing delivery would also be better equipped to manage the customer experience and maintain customer relationships and data.

Last Mile Delivery Service. Retail focus on last mile delivery—the movement of goods from a transportation hub to the final delivery destination—has grown exponentially over the past few years due to the rise in online ordering and e-commerce. Consumers’ ability to pick and choose products based on delivery speed and availability makes last mile delivery a key differentiator among retailers. Last mile delivery provides retailers timelier and more convenient delivery options not offered by the main three shipping services in the U.S. (the U.S. Postal Service, FedEx, and UPS). Additionally, given the increasing designation of low emission zones in urban centers, retailers will need to continue to deploy eco-friendly vehicles. Retailers will likely expand the use of LSEV fleets to make deliveries in low emission zones due to their zero gas emissions and lower price than competing electric vehicles. We expect that the AYRO 411 Fleet, with its variety of cargo bed options ideal for hauling and delivery and its low price point, should stand out among the competition.

Municipalities. As more city governments adopt regulations geared toward reducing pollution from vehicles, cities are increasingly looking to replace their municipal vehicles with zero-emission fleets. Such fleet overhauls, however, can be costly. LSEVs are a cheaper and more practical option for cities daunted by the cost of standard electronic vehicles. Our LSEVs have both on and off-road capabilities, making them particularly versatile for municipalities.

On-Road and Personal Transportation. LSEVs offer a feasible and practical method of transportation, especially in urban centers. Because our LSEVs are street legal, they offer city dwellers a more sustainable, cost-efficient, easily maneuverable, compact and light weight option compared to internal combustion engine vehicles. Our LSEVs also offer a variety of specifications and equipment, meaning that consumers do not have to sacrifice comfort or convenience.

We primarily focus on the LSEV North American market, which is highly competitive and constitutes 28% of the global LSEV market according to Wise Guy Reports. We have examined various considerations with regard to our market impact, including cost comparisons to existing vehicles in the market, market validation and target commercial markets.

Business Developments

On September 25, 2020, we entered into the Karma Agreement with Karma. The term of the contract is for 12 months. Pursuant to the agreement Karma will provide certain manufacturing services, starting in 2021, under an attached statement of work including final assembly, raw material storage and logistical support of AYRO’s vehicles in return for compensation of $1.2 million. We paid Karma an amount of $0.52 million which was recorded as prepaid expense as of December 31, 2020. Additionally, we made a cash payment of $0.08 million and issued warrants to an advisor to the transaction at signing of the contract with a fair value of $0.07 million.

Resources

We source our semi-knocked-down kits for the AYRO 411 from Cenntro. While many of their components are commercial off-the-shelf (“COTS”) parts, many are specific to the 411 product and are subject to raw material limitations. However, in designing our next generation three-wheeled vehicle, we are endeavoring to reduce supply risk by designing the vehicle to use as many COTS components as possible. Additionally, we are designing the platform for our next generation three-wheeled vehicle to fit replacement parts from multiple suppliers, which helps us reduce our resource supply risk.

Intellectual Property

As we expand our vehicle & service roadmaps, and integrated technologies, our focus on identifying specific market and customer needs continues to drive purpose-built engineering efforts.

Leveraging the all-electric AYRO 411 Fleet LSV and Non- LSV Vehicles, we develop applications or use case solutions optimized for the storage, delivery and logistics for delivering food, beverages, merchandise, equipment, tools and related goods. This is accomplished by integrating application-specific appliances, storage facilities, vehicle wraps and brands and related items. We leverage either integrated traction or a separate battery power system to provide AC power to the various appliances and solution elements. We are filing and have filed a number of provisional utility and/or design patents associated with the aforementioned verticalization development, and we have filed for both in the United States and internationally trademarks to cover the company name, company logo, and certain other key product and service marks. We continue to focus on innovative and applicable electric vehicle optimization designs that serve an expanding customer and application use base.

Patents

We currently have United States registrations for two design patents. Both were issued on February 11, 2020 and will expire on February 11, 2035. In addition to these issued patents, we have numerous non-public patent applications on file with the United States Patent and Trademark Office (“USPTO”).

We have filed United States registrations for three provisional patents in February 2021. Unless the patents are perfected within a twelve-month period from their filing date, they will expire.

Trademarks

We have numerous granted and pending trademark applications in the United States and abroad. We registered the word “AYRO” as United States Registration No. 88431321 on June 23, 2020. This registration was also filed in Canada, Mexico, and the European Union under the Madrid Protocol as Registration No. 1507096. Our company logo was registered as United States Registration No. 88859276 on October 13, 2020. This logo was also registered in Canada, Mexico, and the European Union under the Madrid Protocol as Registration No. 1554092. Our application for the color version of our company logo was filed in the United States on October 9, 2020 as Serial No. 90245135 and is currently in prosecution with the USPTO. We have also filed an application on March 9, 2021 for the mark “Driven to Deliver” in the United States as Serial No. 90567849.

Government Regulations

Many governmental standards and regulations relating to safety, fuel economy, emissions control, noise control, vehicle recycling, substances of concern, vehicle damage, and theft prevention are applicable to new motor vehicles, engines, and equipment manufactured for sale in the United States, Europe, and elsewhere. In addition, manufacturing and other automotive assembly facilities in the United States, Europe, and elsewhere are subject to stringent standards regulating air emissions, water discharges, and the handling and disposal of hazardous substances. The most significant of the standards and regulations affecting AYRO are discussed below.

Mobile Source Emissions Control

The federal Clean Air Act imposes stringent limits on the amount of regulated pollutants that lawfully may be emitted by new vehicles and engines produced for sale in the United States. The current (“Tier 2”) emissions regulations promulgated by the Environmental Protection Agency, or the EPA, set standards for motorcycles. Tier 2 emissions standards also establish durability requirements for emissions components to 5 years or 30,000 kilometers.

California has received a waiver from the EPA to establish its own unique emissions control standards for certain regulated pollutants. New vehicles and engines sold in California must be certified by the California Air Resources Board (“CARB”). CARB’s emissions standards for motorcycles are in line with those of the EPA. We currently expect that our vehicles will meet and exceed both the EPA’s and CARB’s standards.

Motor Vehicle Safety

The National Highway Traffic Safety Administration (“NHTSA”) defines a motorcycle as “a motor vehicle with motive power having a seat or saddle for the use of the rider and designed to travel on not more than three wheels in contact with the ground.” In order for a manufacturer to sell motorcycles in the U.S., the manufacturer has to self-certify to meet a certain set of regulatory requirements promulgated by the NHTSA in its Federal Motor Vehicle Safety Standards (“FMVSS”).

AYRO’s FMVSS strategy is designed to meet both federal motorcycle and state-specific autocycle requirements, as applicable, and conform as much as possible to automotive FMVSS requirements while not violating the motorcycle requirements that AYRO must meet.

The National Traffic and Motor Vehicle Safety Act of 1966, or “Safety Act,” regulates vehicles and vehicle equipment in two primary ways. First, the Safety Act prohibits the sale in the United States of any new vehicle or equipment that does not conform to applicable vehicle safety standards established by NHTSA. Meeting or exceeding many safety standards is costly, in part because the standards tend to conflict with the need to reduce vehicle weight in order to meet emissions and fuel economy standards. Second, the Safety Act requires that defects related to motor vehicle safety be remedied through safety recall campaigns. A manufacturer is obligated to recall vehicles if it determines the vehicles do not comply with a safety standard If we or NHTSA determine that either a safety defect or noncompliance exists with respect to any of our vehicles, the cost of such recall campaigns could be substantial.

Operator’s License and Helmet Requirements

State regulations regarding operator licensing and occupant helmet requirements are currently a nationwide patchwork with regard to certain three-wheeled vehicles that may be classified as autocycles. While the strong majority of states have some form of exemption from helmet and motorcycle license requirements for three-wheeled vehicles qualifying as autocycles, the specific wording of each state’s statute may or may not include our three-wheeled vehicles. For example, in a selection of our larger market potential states of California, Texas and Florida, three-wheeled vehicles that are “fully enclosed” or “enclosed cab” are exempt from helmet and motorcycle endorsement requirements. In addition, for states that have passed specific autocycle requirements, many require that the vehicle have standard operating controls (accelerator and brakes) and a standard steering wheel, plus additional requirements. Our three-wheeled vehicles will offer standard controls to meet requirements aligned with these elements.

Our advocacy strategy involves creating a plan to work with state legislatures to advocate the normalization of these rules to reduce consumer confusion in the marketplace that comes from conflicting state-by-state regulations. Additionally, new products brought to market are designed in accordance with the most-restrictive state autocycle and vehicle laws so as to comply with all state laws and regulations.

U.S. Environmental Protection Agency (“EPA”) Certification

Our product programs are built on plug-in electric, zero emissions platforms. We report federal and state emissions data consistent with 10 CFR 474 and CARB requirements for Zero-Emission Vehicle certification.

Electromagnetic Compatibility

The Federal Communications Commission is the federal agency responsible for implementing and enforcing the communications law and regulations, including title 47 of the Code of Federal Regulations, specifically Part 15, which regulates unlicensed radio-frequency transmissions, both intentional and unintentional. With very few exceptions, all electronics devices must be reviewed to comply with Part 15 before they can be advertised or sold in the U.S. market.

Motor Vehicle Manufacturer and Dealer Regulation

As with helmet laws and driver license requirements, state laws that regulate the manufacture, distribution, and sale of motor vehicles are a patchwork, nationwide. Our agreement with Club Car aims to provide U.S. and targeted countries channel and dealer coverage. For our electric vehicles, outside of our collaboration with Club Car or another third-party sales/distribution white label partner, we plan on a multi-faceted approach to sales, including exploring the following: (i) developing an expanded network of channel partners; (ii) entering into direct sales via a national leasing company that will in turn consummate sales with end users in a variety of states; and/or (iii) opening facilities in high growth states and delivering the vehicle to the end user via a common carrier.

We are registered as a manufacturer in Texas, California, Colorado, Louisiana, Florida and Arizona.

Pollution Control Costs

We are required to comply with stationary source air pollution, water pollution, and hazardous waste control standards that are now in effect or are scheduled to come into effect with respect to our manufacturing operations.

Research and Development

Our product development and engineering efforts align with the Society of Automotive Engineering (“SAE”) J2258_201611 standards for Light Utility Vehicles. The J2258 standard provides key compliance criteria for Gross Vehicle Weight Rating (“GVWR”), occupant protection and safety restraint systems, lateral and longitudinal stability, center of gravity and operating controls, among others. Our test validation and inspection standards follow FMVSS 49 CFR 571.500 for LSVs with the additions of SAE J585 and FMVSS 111 for rear visibility, lighting, signaling, reflectors, changes in direction of movement, back-up camera response timing and field of view.

Our development standards and test compliance validation processes are supported by a variety of test documentation including supplier self-reporting, third party laboratory test reports and regional compliance validation with CARB for speed, range and environmental performance.

Our production system follows a lean, cell-based manufacturing model. The process involves the following five sequential cells: (1) cab preparation, (2) chassis preparation, (3) system integration and testing, (4) final assembly and integration test, and (5) QA & FMVSS Compliance. Assembly quality and shift efficiency metrics are measured daily by our production staff at end of every shift.

We maintain a certification and compliance check list for each vehicle. Our three and four-wheeled vehicles use an automotive style steering wheel, turn signal stalk, headlight, running light and reverse light controls, a multi-speed windshield wiper and washer and an accelerator and brake pedal consistent with controls employed in standard passenger cars. As the AYRO 411 Fleet vehicles are direct drive vehicles, there is no stick shift, clutch, paddle shift, or belt driven CSV (continuously variable) transmission needed to operate the vehicles within the intended torque band and speed range. Accordingly, our vehicles are homologated under existing U.S., state and local LSV requirements and the corresponding motorcycle and autocycle requirements under 49 CFR 571.3.

Segment Information

We operate as one reportable segment, which is the design, development, manufacturing and sales of electric vehicles.

Employees

As of December 31, 2020, we had 26 full-time employees. None of our employees are represented by a labor union, and we maintain good relations with our employees. We have not furloughed employees due to the COVID-19 pandemic. In an effort to attract and retain quality employees, we offer industry-standard compensation and benefits packages to our employees and prospective employees.

Geographic Areas

We operate in the United States and all our revenue was generated in the United States during the fiscal year ended December 31, 2020. All of our assets are held in United States.

Corporate History

Merger

On May 28, 2020, pursuant to the Merger Agreement, by and among the Company, Merger Sub, will mergeand AYRO Operating, Merger Sub was merged with and into AYRO Operating, with AYRO Operating continuing after the merger as ourthe surviving entity and a wholly owned subsidiary of the Company. At the effective time of the Merger, without any action on the part of any stockholder, each issued and outstanding share of AYRO Operating’s common stock, par value $0.001 per share (the “AYRO Operating Common Stock”), including shares underlying AYRO Operating’s outstanding equity awards and warrants, was converted into the right to receive 1.3634 shares (the “Exchange Ratio”) of the Company’s common stock, par value $0.0001 per share (the “Company Common Stock”). Immediately following the effective time of the Merger, the Company effected a 1-for-10 reverse stock split of the issued and outstanding Company Common Stock (the “Reverse Stock Split”), and immediately following the Reverse Stock Split, the Company issued a stock dividend of one share of Company Common Stock for each outstanding share of AYRO Operating Common Stock to all holders of record immediately following the effective time of the Reverse Stock Split (the “Stock Dividend”). The net result of the Reverse Stock Split and the surviving corporationStock Dividend was a 1-for-5 reverse stock split. Upon completion of the merger (the “AYRO Merger”).  We will issueMerger and the transactions contemplated in the Merger Agreement and assuming the exercise in full of all pre-funded warrants issued pursuant thereto, (i) the former AYRO Operating equity holders (including the investors in a bridge financing and in private placements that closed prior to closing of the Merger) owned approximately 79% of the outstanding equity of the Company; (ii) former DropCar stockholders owned approximately 18% of the outstanding equity of the Company; and (iii) a financial advisor to DropCar and AYRO owned approximately 3% of the outstanding equity of the Company.

The Merger was treated as a reverse recapitalization effected by a share exchange for financial accounting and reporting purposes because substantially all of DropCar, Inc.’s operations were disposed of as part of the consummation of the Merger and therefore no goodwill or other intangible assets were recorded by the Company as a result of the Merger. AYRO Operating was treated as the accounting acquirer, as its stockholders controlled the Company after the Merger, even though DropCar, Inc. was the legal acquirer. As a result, the assets and liabilities and the historical operations that are reflected in our consolidated financial statements are those of AYRO Operating as if AYRO Operating had always been the reporting company. All references to AYRO Operating, Inc. shares of our common stock, to the AYRO equity holders in connection with the AYRO Merger as merger consideration.

Closing of Asset Purchase Agreement

On December 19, 2019, weDropCar entered into an asset purchase agreement (the “Asset Purchase Agreement”) by and among us, DropCar Operating Company, Inc., a Delaware corporation and wholly owned subsidiary of DropCar (“DropCar Operating”),with DC Partners Acquisition, LLC (“DC Partners”), Spencer Richardson and David Newman, pursuant to which DropCar Operating agreed to sell substantially all of the assets associated with its business of providing vehicle support, fleet logistics and concierge services for both consumers and the automotive industry to an entity controlled by Messrs. Richardson and Newman, our currentthe Company’s Chief Executive Officer and Chief Business Development Officer respectively (the “Asset Sale Transaction”).at the time, respectively. The aggregate purchase price for the purchased assets consistsconsisted of the cancellation of certain liabilities pursuant to those certain employment agreements by and between DropCar Operating and each of Messrs. Richardson and Newman, plus the assumption of certain liabilities relating to, or arising out of, workers’ compensation claims that occurred prior to the closing date of the Asset Purchase Agreement.

Corporate Information

Our corporate headquarter is located at 900 E. Old Settlers Blvd, Round Rock, Texas 78664. Our phone number is 512-994-4917. Our website address is www.ayro.com. The information on, or that sets forthcan be accessed through, our website is not incorporated by reference into this Annual Report. We currently lease approximately 23,927 square feet of office and warehouse space under a commitmentlease that expires on March 31, 2027.

Available Information

We make available, free of charge, our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to consider all available options to regain compliance with the Listing Rule, including the option to effectuate a reverse stock split upon receipt of stockholder approval, which we intend to seek in connection with the joint proxy statementthese reports on our website at www.ayro.com as soon as reasonably practicable after those reports and consent solicitation statement/prospectusother information is electronically filed with, or furnished to, the Securities and Exchange Commission on February 14, 2020 in connection with the AYRO Merger, in order to bring our stock price over the $1.00 bid price requirement and to meet the $4.00 bid price initial listing requirement. However, there can be no assurance that we will be successful in regaining compliance with the Listing Rule.

Our business, results of operations and financial condition may be materially adversely impacted if a public health epidemic, including the recent coronavirus outbreak, interferes with our ability, or the ability of our employees, workers, contractors, suppliers and other business partners to perform our and their respective responsibilities and obligations relative to the conduct of our business. A public health epidemic, including the coronavirus, poses the risk of disruptions from the temporary closure of third-party suppliers and manufacturers, restrictions on our employees'employees’ and other service providers'providers’ ability to travel, the decreased willingness or ability of our customers to test drive or purchase our vehicles and shutdowns that may be requested or mandated by governmental authorities. Our business, results of operations and financial condition have been adversely impacted by the recent coronavirus outbreak both in China and the United States. This has delayed our ability to timely procure raw materials from our supplier in China, which, in turn, has delayed shipments to and corresponding revenue from customers. The pandemic and social distancing directives have interfered with our ability, or the ability of our employees, workers, contractors, suppliers and other business partners to perform our and their respective responsibilities and obligations relative to the conduct of our business. The COVID-19 pandemic epidemic poses restrictions on our employees’ and other service providers’ ability to travel on pre-sales meetings, customers’ abilities to physically meet with our employees and the ability of our customers to test drive or to utilizepurchase our servicesvehicles and shutdowns that may be requested or mandated by governmental authorities. The extent to which the coronavirus may continue to impact our results will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of the coronavirus and the actions to contain the coronavirus or treat its impact, among others.

As of January 1, 2019, DropCar Operating, Inc. (“DropCar Operating”) had accrued approximately $0.23 million for the settlement of multiple employment disputes. As of December 31, 2020, a de minimis amount remained accrued as accounts payable and accrued expenses for the settlement of the final remaining employment dispute.

On March 23, 2018, DropCar Operating was made aware of an audit being conducted by the New York City, New York 10018. We operate underState Department of Labor (“DOL”) regarding a monthclaim filed by an employee. The DOL is investigating whether DropCar Operating properly paid overtime for which DropCar Operating has raised several defenses. In addition, the DOL is conducting its audit to month lease requiring 60 days’ notice. We believe our current facility is suitable and adequate to meetdetermine whether DropCar Operating owes spread of hours pay (an hour’s pay for each day an employee worked or was scheduled for a period over ten hours in a day). If the DOL determines that monies are owed, the DOL will seek a backpay order, which management believes will not, either individually or in the aggregate, have a material adverse effect on our business, requirements. We intendconsolidated financial position, results of operations or cash flows. Management believes the case has no merit.

DropCar was a defendant in a class action lawsuit which resulted in a judgement entered into whereby the Company is required to continue working from this or a nearby facilitypay legal fees in the same geographic location.

We are subject to various legal proceedings and claims, either asserted or unasserted, which arise in the ordinary course of business, that it believeswe believe are incidental to the operation of itsour business. While the outcome of these claims cannot be predicted with certainty, other than as set forth below, management does not believe that the outcome of any of these legal matters will have a material adverse effect on itsour results of operations, financial positions or cash flows.

Market Information

Our common stock is currently tradedtrades on The Nasdaqthe NASDAQ Capital Market under the symbol “DCAR”“AYRO”.

On December 31, 2020, the last reported sale price of our common stock on the NASDAQ Capital Market was $6.08 per share.

Stockholders

As of March 25, 2020, we had 33 holders30, 2021, there were approximately 148 stockholders of record of our common stock. As of March 25, 2020, the closing bid price of our common stock was $0.43 per share.

Dividends

We have nevernot paid aany cash dividend ondividends to our common stockstockholders since inception and do not anticipate paying anyplan to pay cash dividends on our common stock in the foreseeable future. Any future declaration of dividends will depend on our earnings, capital requirements, financial condition, prospects and any other factors that our board of directors deems relevant, as well as compliance with the requirements of state law. In general, as a Delaware corporation, we may pay dividends out of surplus capital or, if there is no surplus capital, out of net profits for the fiscal year in which a dividend is declared and/or the preceding fiscal year. We currently intend to retain future earnings, to fund ongoing operations and future capital requirements ofif any, for reinvestment in our business. Any future determination to pay cash dividends will be at the discretion of the Board, in compliance with Delaware corporate law and will be dependent upon our financial conditions, results of operations, capital requirements and such other factors as the Board deems relevant. Our preferred stock has the right to participate in any declared dividend on common shares to the same extent as if such preferred holders had converted each preferred share to common stock.

None.

None.

On November 19, 2020, the SEC issued final rules to amend Regulation S-K. These changes are effective for annual filings for the first fiscal year ending on or after August 9, 2021, and early adoption is permitted. We are a smaller reporting company as defined by Rule 12b-2elected to adopt the amendments to Item 301 of Regulation S-K in their entirety, which remove the requirement to furnish selected financial data for each of the Exchange Act, and are not required to provide the information required under this item.

References in this management’s discussion and analysis to January 30, 2018,“we,” “us,” “our,” “our Company” or “AYRO” refer to AYRO, Inc. and its subsidiaries.

Overview

Merger

On May 28, 2020, pursuant to the previously announced Agreement and Plan of Merger, dated December 19, 2019 (the “Merger Agreement”), by and among AYRO, Inc., a Delaware corporation previously known as DropCar, Inc., ABC Merger Sub, Inc., a Delaware corporation and a wholly owned subsidiary of the Company (“Merger Sub”), and AYRO Operating Company (“AYRO Operating”), a Delaware corporation previously known as AYRO, Inc., Merger Sub was merged with and into AYRO Operating, with AYRO Operating continuing after the merger as the surviving entity and a wholly owned subsidiary of the Company (the “Merger”). At the effective time of the Merger, without any action on the part of any stockholder, each issued and outstanding share of AYRO Operating’s common stock, par value $0.001 per share (“AYRO Operating Common Stock”), including shares underlying AYRO Operating’s outstanding equity awards and warrants, was converted into the right to receive 1.3634 pre-split and pre-stock dividend shares (the “Exchange Ratio”) of the Company’s common stock, par value $0.0001 per share (“Company Common Stock”). As part of the Merger, we received cash of $3.06 million in consideration for 2,337,663 shares of common stock. Upon completion of the Merger and the transactions contemplated in the Merger Agreement and assuming the exercise in full of all pre-funded warrants issued pursuant thereto, (i) the former AYRO Operating equity holders (including the investors in a bridge financing and private placements that closed prior to closing of the Merger) owned approximately 79% of the outstanding equity of the Company; (ii) former DropCar stockholders owned approximately 18% of the outstanding equity of the Company; and (iii) a financial advisor to DropCar and AYRO owned approximately 3% of the outstanding equity of the Company.

The Merger was treated as a reverse recapitalization effected by a share exchange for financial accounting and reporting purposes because substantially all of DropCar, Inc.’s operations were disposed of as part of the consummation of the Merger and therefore no goodwill or other intangible assets were recorded by the Company as a result of the Merger. AYRO Operating was treated as the accounting acquirer as its stockholders controlled the Company after the Merger, even though DropCar, Inc. was the legal acquirer. As a result, the assets and liabilities and the historical operations that are reflected in our consolidated financial statements are those of AYRO Operating as if AYRO Operating had always been the reporting company.

Reverse Stock Split and Stock Dividend

On May 28, 2020, immediately following the effective time of the Merger, we effected a reverse stock split of the issued and outstanding shares of our common stock, at a ratio of one share for ten shares (the “Reverse Stock Split”). Immediately following the Reverse Stock Split, we issued a stock dividend of one share of the Company’s common stock for each outstanding share of common stock to all holders of record immediately following the effective time of the Reverse Stock Split (the “Stock Dividend”). The net result of the Reverse Stock Split and the Stock Dividend was a privately-held provider1-for-5 reverse stock split. We made proportionate adjustments to the per share exercise price and/or the number of automotiveshares issuable upon the exercise or vesting of all stock options, restricted stock units (if any) and warrants outstanding as of the effective times of the Reverse Stock Split and the Stock Dividend in accordance with the terms of each security based on the split or dividend ratio. Also, we reduced the number of shares reserved for issuance under our equity compensation plans proportionately based on the split and dividend ratios. Except for adjustments that resulted from the rounding up of fractional shares to the next whole share, the Reverse Stock Split and Stock Dividend affected all stockholders uniformly and did not change any stockholder’s percentage ownership interest in the Company. The Reverse Stock Split did not alter the par value of Company Common Stock, $0.0001 per share, or modify any voting rights or other terms of the common stock. Except as otherwise set forth herein, share and related option or warrant information presented in this Management’s Discussion and Analysis of Financial Condition and Results of Operations have been adjusted to reflect the reduced number of shares outstanding, the increase in share price which resulted from these actions or otherwise to give effect to the Reverse Stock Split and the Stock Dividend.

Transactions Related to the Merger

Simultaneous with the signing of the Merger Agreement, accredited investors, including certain investors in DropCar, purchased $1.0 million of AYRO Operating’s convertible bridge notes bearing interest at the rate of 5% per annum (the “Bridge Notes”). The Bridge Notes automatically converted into 1,030,585 shares of AYRO Operating Common Stock immediately prior to the consummation of the Merger representing an aggregate of 7.45% of the outstanding common stock of the combined company after giving effect to the Merger. Pursuant to the terms of the Bridge Notes, immediately prior to the closing of the Merger, the five lenders received warrants to purchase 1,030,585 shares of AYRO Operating Common Stock at an exercise price of $1.1159 per share. In conjunction with the bridge notes, we issued Palladium Capital Advisors, LLC (together with its affiliates, “Palladium”), our advisor, a warrant to purchase 72,141 shares of the Company’s common stock at an exercise price of $1.1159 per share.

In addition, immediately prior to the execution and delivery of the Merger Agreement, AYRO Operating entered into agreements with accredited investors, including certain stockholders of DropCar, pursuant to which such investors agreed to purchase, prior to the consummation of the Merger, 543,179 shares of AYRO Operating Common Stock (or common stock equivalents or pre-funded warrants to purchase 429,305 shares of Company Common Stock) representing an aggregate of 16.55% of the outstanding common stock of the combined company after giving effect to the Merger and warrants to purchase an equivalent number of shares of AYRO Operating Common Stock for an aggregate purchase price of $1.2 million (the “AYRO Private Placement”). Pursuant to the terms of the AYRO Private Placement, immediately prior to the closing of the Merger, the investors received warrants to purchase 972,486 shares of AYRO Operating Common Stock at an exercise price of $1.3599 per share. On the closing date of the Merger, AYRO Operating issued to the investors party to this second AYRO Operating Private Placement SPA (i) an aggregate of approximately 1,030,039 shares of common stock and pre-funded warrants to purchase 286,896 shares of Company Common Stock for an aggregate of $0.85 million and warrants to purchase 1,316,936 shares of AYRO Operating Common Stock at an exercise price of $0.7423 per share. In conjunction with the AYRO Private Placement, we issued Palladium, our advisor, a warrant to purchase 92,186 shares of the Company’s common stock at an exercise price of $0.7423 per share and a warrant to purchase 68,074 shares of the Company’s common stock at an exercise price of $1.3599 per share.

As additional consideration to the lead investor in the AYRO Private Placement, AYRO Operating also entered into a stock subscription agreement with the lead investor, pursuant to which, immediately prior to the Merger, AYRO Operating issued pre-funded warrants to purchase an aggregate of 477,190 shares of AYRO Operating Common Stock for the nominal per share purchase price of $0.000367 per share.

As part of the Merger, the Company issued to Palladium Holdings, LLC, its advisor, 415,000 shares of the Company’s common stock, par value $0.0001 per share.

On December 19, 2019, AYRO Operating entered into a letter agreement with ALS Investment, LLC (“ALS”), pursuant to which AYRO Operating issued ALS 622,496 shares of AYRO Operating Common Stock, which equaled 4.5% of the outstanding shares of common stock of the combined company giving effect to the Merger. In addition to introducing AYRO Operating and DropCar, ALS agreed to provide, as an independent contractor, consulting services to us relating to financial, capital market and investor relations for twelve months following the closing of the Merger.

In February 2020, AYRO Operating received a $0.5 million secured loan from certain existing investors in DropCar and AYRO Operating, and, in connection therewith, we received $10,000 upon exercise of the previously issued warrants to purchase 100,000 shares of common stock. The entire amount of the loan was paid off upon closing of the Merger.

In April 2020, AYRO Operating issued a secured promissory note payable to an individual investor providing $0.6 million of short-term financing. The note carried an interest rate of fifteen percent (15%) and was to be repaid upon the earlier of (1) closing date of the pending the Merger and (2) July 14, 2020. Fifty percent (50%) of the principal amount was personally guaranteed by Mark Adams, a former director of AYRO Operating and AYRO. In conjunction with the notes 553,330 shares of common stock (276,665 shares of common stock representing two percent (2%) of the combined company’s post-merger outstanding common stock each) were issued to the lender and to Mr. Adams as compensation for his personal guarantee. The entire amount of the loan was paid off upon the closing of the Merger.

Other AYRO Operating Warrants

At the effective time of the Merger, each AYRO Operating warrant that was outstanding and unexercised immediately prior to the effective time was converted pursuant to its terms and became a warrant to purchase Company Common Stock.

Closing of Asset Purchase Agreement

On December 19, 2019, DropCar entered into an asset purchase agreement (the “Asset Purchase Agreement”) with DC Partners Acquisition, LLC (“DC Partners”), Spencer Richardson and David Newman, pursuant to which DropCar agreed to sell substantially all of the assets associated with its business of providing vehicle support, fleet logistics and concierge services for both consumers and the automotive industry. In 2015, we launched our cloud-based Enterprise Vehicle Assistance and Logistics (“VAL”) platform and mobile application (“App”) to assist consumers and automotive-related companies reduce the costs, hassles and inefficiencies of owning a car, or fleet of cars, in urban centers. Our VAL platform is a web-based interface to our core service that coordinates the movements and schedules of trained valets who pickup and drop off cars at dealerships and customer locations. The App tracks progress and provides email and/or text notifications on status to customers, increasing the quality of communication and subsequent satisfaction with the service. To date, we operate primarily in the New York metropolitan area and may expand our territory in the future.

Recent Developments

On February 5,June 17, 2020, we entered into separate exchange agreements (the “Exchange Agreements”) with the holders of existing Series H-5 Convertible Preferred Stock (the “Series H-5 Shares”), par value $0.0001 per share, to exchange an equivalent number of shares of our Series H-6 Convertible Preferred Stock (the “Series H-6 Shares”), par value $0.0001 per share (the “Exchange”). The Exchange closed on February 5, 2020. The purpose of the exchange was to include voting rights.

On March 8, 2018, we filed the Certificate of Designations, Preferences and Rights of the Series H-4 Convertible Preferred Stock (the “Series H-4 Certificate of Designation”) with the Secretary of State of the State of Delaware, establishing and designating the rights, powers and preferences of the Series H-4 Shares. We designated up to 30,000 shares of Series H-4 Shares and each share has a stated value of $235.50 (the “H-4 Stated Value”). Each share of Series H-4 Shares is convertible at any time at the option of the holder thereof, into a number of shares of common stock determined by dividing the H-4 Stated Value by the conversion price of $14.13 per share, subject to a 9.99% blocker provision. The Series H-4 Shares have the same dividend rights as the common stock, and no voting rights except as provided for in the Series H-4 Certificate of Designation or as otherwise required by law. In the event of any liquidation or dissolution of the Company, the Series H-4 Shares rank senior to the common stock in the distribution of assets, to the extent legally available for distribution.

On September 25, 2020, we entered into a Securities PurchaseMaster Manufacturing Services Agreement (the “Karma Agreement”) with Karma Automotive, LLC (“Karma”). The term of the contract is for 12 months. Pursuant to the agreement Karma will provide certain manufacturing services, starting in 2021, under an attached statement of work including final assembly, raw material storage and logistical support of our vehicles in return for compensation of $1.68 million. We paid Karma an amount of $0.52 million and issued warrants to an advisor to the transaction with a fair value of $0.07 million due at signing of the contract. The payment was recorded as prepaid expense as of December 31, 2020. Pursuant to the Karma Agreement, we paid cash of $0.08 and issued a warrant (the “September Warrants”) to purchase 31,348 shares of our common stock at an exercise price of $3.19 per share to a vendor for facilitating a manufacturing agreement. The September Warrant is immediately exercisable and expires on September 25, 2025.

On November 22, 2020, we entered into a securities purchase agreement with certain institutional and accredited investors, pursuant to which we issuedagreed to the investorsissue and sell in a registered direct offering an aggregate of 34,722 Series H-5 Shares convertible into an aggregate of 3,472,2001,650,164 shares of our common stock, par value $0.0001 per share, at an offering price of $6.06 per share, for gross proceeds of approximately $10.0 million before the deduction of fees and warrantsoffering expenses of $0.85 million. Pursuant to the Securities Purchase Agreement, the Company agreed to issue to the investors, unregistered Series A Warrants to purchase 3,472,200 shares of our common stock, with an exercise price of $0.792 per share, subjectup to adjustments. The purchase price per Series H-5 Share was $72.00, equal to (i) the closing price of the Common Stock on the Nasdaq Capital Market on December 5, 2019, plus $0.125 multiplied by (ii) 100. The aggregate purchase price for the Series H-5 Shares and H-5 Warrants was approximately $2.5 million. Subject to certain ownership limitations, the H-5 Warrants will be exercisable beginning six months from the issuance date and will be exercisable for a period of five years from the initial exercise date. As described above under “Recent Developments – Exchange Agreements,” on February 5, 2020, we entered into Exchange Agreements with the holders of existing Series H-5 Shares to exchange an equivalent number of shares of our Series H-6 Shares. The Exchange closed on February 5, 2020.

On September 5, 2018, we received a request from Nasdaq to amend our Series H-4 Warrants to provide that the Series H-4 Warrants may not be exercised until we have obtained stockholder approval of the issuance of common stock underlying the Series H-4 Warrants pursuant to the applicable rules and regulations of Nasdaq. In response to the request, on September 10, 2018, we entered into an amendment (the “Warrant Amendment”) with the holders of the Series H-4 Shares to provide for stockholder approval as described above prior to the exercise of the Series H-4 Warrants. We received stockholder approval of the issuance of common stock underlying the Series H-4 Shares on November 15, 2018.

Additionally, AYRO issued Palladium a warrant to purchase 233,334 shares of common stock because the purchase of common stock would have caused the beneficial ownership of the purchaser, together with its affiliates and certain related parties, to exceed 9.99% of our outstanding common stock.   The price to the purchaser for each Series K Warrant was $3.54 and the Series K Warrants are immediately exercisable at a price of $0.06 per share of common stock.  The Series K Warrants and shares of common stock for which they may be exercised were offered pursuant to a registration statement on Form S-3 (File No. 333-227858).

On February 11, 2021, we entered into a securities purchase agreement with certain institutional and accredited investors, at such closing, provide forpursuant to which we agreed to issue and sell in a cashless exercise, haveregistered direct offering an exercise price equal to the offering price per share in the closing, and expire on the five year anniversary at such closing. In addition, we shall pay Palladium compensation for advisory services in connection with a possible business combination with an unaffiliated third party whereby we shall issue the numberaggregate of 4,400,001 shares of common stock at an offering price of $9.50 per share, for gross proceeds of approximately $41.8 million before the post-merger entity immediately after the AYRO Merger that represents 2.5%deduction of the outstandingfees and offering expenses. Each purchaser was also granted an option to purchase, on or before February 16, 2022, additional shares of common stock equal to the full amount of 75% of the common stock it purchased at the initial closing, or an aggregate of 3,300,000 shares, at an exercise price of $11.50 per share.

Palladium and Spartan Capital Securities, LLC “Spartan,” or collectively with Palladium, the “Financial Advisors” are entitled to a fee equal to 8% of the gross proceeds raised in any surviving post-merger entity.

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

Sales and marketing expense

Sales and marketing expense increased by $0.12 million, or 8.9%, for the year ended December 31, 2018. This was primarily attributable to interest expense in relation2020, as compared to the Lock-Up Agreements recordedyear ended December 31, 2019, as we redirected our marketing focus in-house rather than outsourced contractors and marketing programs. Salaries and wages increased by $0.40 million and stock-based compensation increased by $0.11 million due to the addition of our Chief Marketing Officer and Chief of Business Development in late 2019 as well as the addition of other sales and marketing resources. Discretionary marketing programs decreased by $0.03 million and contracting for professional marketing services decreased by $0.47 million. These reductions in 2020 relative to 2019 were due to the redirection of our marketing focus in-house. Additionally, depreciation expense for demonstration vehicles assigned to the sales and marketing team increased by $0.12 million as compared to 2019 due to a reclassification from general and administration expenses to sales and marketing expense for demonstration vehicles assigned to the sales and marketing team.

General and administrative expenses

The majority of our operating losses from continuing operations resulted from general and administrative expenses. General and administrative expenses consist primarily of costs associated with our overall operations and with being a public company. These costs include personnel, legal and financial professional services, insurance, investor relations, and compliance related fees. General and administrative expense was $6.60 million for the year ended December 31, 20182020, compared to $6.68 million for 2019, a decrease of $0.07 million. Contractor and consulting expenses decreased by $1.77 million. Contractor and consulting expenses for 2019 included $2.64 million of stock-based compensation paid to Christian Okonsky and Mark Adams, founders of AYRO and former board members and we also incurred an expense of $0.27 million for warrants issued for advisory services in 2019. Neither of these equity-related expenses were repeated in 2020. The reduction in contractor and consulting expenses was offset by an increase in contracting for professional services of $1.14 million, primarily a result of additional audit, legal and investor relations expenses incurred to support public reporting requirements. Board compensation expense increased by $0.22 million. Salaries and related costs increased by $0.17 million due to corporate expansion. Other public company-related expenses increased by $0.46 million. Stock-based compensation expense increased by $1.17 million, primarily due to the expense of director and employee equity awards in 2020. Depreciation decreased by $0.41 million, primarily driven by fully depreciating the tooling for our AYRO 311 product line during 2019 and the reclassification of the $0.12 million depreciation expense for demonstration vehicles assigned to the sales and marketing team due to our redirection of our marketing focus in-house.

Other income and expense

Other income increased by $0.23 million in 2020 compared to 2019. The increase was primarily due to the forgiveness of our Paycheck Protection Program (“PPP”) loan in the amount of $0.7$0.22 million in principal and interest effective December 29, 2020. In addition, we received $0.02 million during 2020 as an incentive for hiring additional personnel in the city of Round Rock, Texas under the city’s standard economic development grant. Interest expense increased $0.15 million, for the year ended December 31, 2020, as compared to 2019, primarily due to the increase in the discount on debt recorded from the equity issuances associated with certain debt instruments issued prior to the Merger. Interest expense also included noncash amortization of warrant discounts issued in conjunction with certain debt offerings. A loss on the extinguishment of debt related to the early redemptions of a note in the principal amount of $0.14 million previously converted from a vendor payable was recorded for $0.02 million, a loss on the extinguishment of debt for a bridge note in the principal amount of $0.60 million was recorded for $0.35 million and a loss on the extinguishment of debt for a bridge note in the principal amount of $0.50 million was recorded for $0.19 million.

As of December 31, 2019 and 2018,2020, we had net losses from continuing operations$36.54 million in cash and working capital of approximately $2.5 million and $2.9 million, respectively. At$38.50 million. As of December 31, 2019, we had an accumulated$0.64 million in cash and working capital deficit of $34.7$0.40 million. We anticipate that we will continueThe increase in cash and working capital was primarily a result of our capital raising activities from June 2020 through December of 2020 in addition to incur net losses intocash received as a result of the foreseeable futureMerger.

Our sources of cash since inception have been predominantly from the sale of equity and will need to raise additional capital to continue. At December 31,debt.

In October 2019, we raised $0.50 million in a 120-day short-term loan from Mark Adams, a former director of AYRO Operating and AYRO. This loan had casha 14% interest rate per annum, was payable quarterly and cash equivalentsan equity incentive of $4.3 million. At these capital levels, we believe we do not have sufficient funds143,795 shares of AYRO Operating common stock. In December 2019, this loan term was extended to continueApril 30, 2021 in exchange for the issuance of 136,340 shares of AYRO Operating common stock. The loan was repaid September 30, 2020.

In December 2019, a local marketing firm agreed to operate forconvert 90% of trade accounts payable the Company owed that firm to a 12 month period fromterm loan with a principal amount of $137,729.03 and bearing interest at the rate of 15% per annum, payable quarterly, with a maturity date of May 31, 2021. The Company also issued the financial statements includedmarketing firm 66,000 shares of common stock in conjunction with this Annual Reportterm loan. A discount on Form 10-K, by which point we will need to become profitable, improve cash flow from operations, begin selling propertydebt of $46,683 was recorded in the transaction and equipment, or complete a new capital raise. These factors raise substantial doubt aboutis being amortized over the Company’s ability to continue as a going concern.

In December 2019, we entered into a Securities Purchase Agreementconvertible bridge loan with five institutional lenders totaling $1.0 million. On May 28, 2020, immediately prior to the closing of the Merger, the five lenders received warrants (the “Bridge Loan Warrants”) to purchase 1,030,585 shares of common stock at an exercise price of $1.1159 per share. The Bridge Loan Warrants had full ratchet anti-dilution price protection with respect to future issuances of securities at an effective price below the exercise price, with the exercise price per share reducing to such exercise price and the number of shares deliverable upon exercise of the warrants increasing such that the aggregate exercise price under each warrant remains constant. The Bridge Loan Warrants would have terminated after a period of five years on May 28, 2025. All Bridge Loan Warrants were exercised prior to December 31, 2020.

In February 2020, we entered into secured promissory notes with three institutional lenders totaling $0.50 million. On May 28, 2020, immediately after the closing of the Merger, pursuant to and in connection with the issuance of these notes, we issued warrants (the “Secured Loan Warrants”) to purchase an aggregate of 100,000 shares of common stock to the three lenders for an aggregate purchase price of $0.01 million. Proceeds from the Merger were used to fully repay the $0.50 million promissory note on May 28, 2020. The Secured Loan Warrants were exercised in full during the three months ended June 30, 2020.

In April 2020, the Company issued a secured promissory note payable to an individual investor providing $600,000 of short-term financing. The notes carried an interest rate of fifteen percent (15%) and were to be repaid upon the earlier of (1) closing date of the pending the Merger and (2) July 14, 2020. Fifty percent (50%) of the principal amount was personally guaranteed by Mark Adams, a former director of AYRO Operating and AYRO. In conjunction with the notes, 553,330 shares of common stock (276,665 shares of common stock representing two percent (2%) of the combined company’s post-merger outstanding common stock each) were issued to the lender and to Mr. Adams as compensation for his personal guarantee.

On May 28, 2020, we completed our reverse merger with DropCar, which resulted in cash received from the merger of $3.1 million, represented by 2,337,663 shares of common stock.

On May 28, 2020, we entered into the first AYRO Operating Private Placement SPA with current stockholders of the Company and AYRO Operating, pursuant to which such stockholders agreed to purchase, prior to the consummation of the Merger, shares of AYRO Operating Common Stock and warrants (the “First Private Placement Warrants”) to purchase AYRO Operating’s common stock for an aggregate purchase price of $1.2 million. Prior to the closing of the Merger, AYRO Operating issued to the investors party to this first AYRO Private Placement SPA (i) an aggregate of approximately 543,179 shares of common stock and pre-funded warrants to purchase 429,305 shares of Company Common Stock at an exercise price of $0.000367 per share, and (ii) First Private Placement Warrants to purchase 972,486 shares of common stock at an exercise price of $1.3599 per share. The First Private Placement Warrants issued pursuant to the first AYRO Operating Private Placement SPA had full ratchet anti-dilution price protection with respect to future issuances of securities at an effective price below the exercise price with the exercise price per share reducing to such exercise price and the number of shares deliverable upon exercise of the warrant increasing such that the aggregate exercise price under each warrant remains constant. The First Private Placement Warrants would have terminated after a period of five years on May 28, 2025. All First Private Placement Warrants were exercised prior to December 31, 2020.

On May 28, 2020, we entered into the second AYRO Operating Private Placement SPA with current investors of the Company and AYRO Operating, pursuant to which such investors agreed to purchase, prior to the consummation of the Merger, shares of AYRO Operating Common Stock and warrants (the “Second Private Placement Warrants”) to purchase AYRO Operating Common Stock for an aggregate purchase price of $0.85 million. On the closing date of the Merger, AYRO Operating issued to the investors party to this second AYRO Operating Private Placement SPA (i) an aggregate of approximately 1,030,039 shares of common stock and pre-funded warrants to purchase 286,896 shares of Company Common Stock at an exercise price of $0.000367 per share, and (ii) Second Private Placement Warrants to purchase 1,316,936 shares of common stock at an exercise price of $0.7423 per share. The Second Private Placement Warrants issued pursuant to the second AYRO Operating Private Placement SPA had full ratchet anti-dilution price protection with respect to future issuances of securities at an effective price below the exercise price with the exercise price per share reducing to such exercise price and the number of shares deliverable upon exercise of the warrant increasing such that the aggregate exercise price under each warrant remains constant. The Second Private Placement Warrants would have terminated after a period of five years on May 28, 2025. All Second Private Placement Warrants were exercised prior to December 31, 2020.

In May 2020, the Company entered into a Paycheck Protection Program Term Note (the “PPP Note”) with Pacific Western Bank, NA in the amount of $218,000. The PPP Note was issued to the Company pursuant to the Coronavirus, Aid, Relief, and Economic Security Act’s (the “CARES Act”) (P.L. 116-136) Paycheck Protection Program (the “Program”). The PPP Note carries a maturity date of May 20, 2022, at a 1% interest rate. On December 29, 2020, notice of the PPP Note forgiveness was granted to the Company. The forgiveness amount of $218,000 in principal and $1,363 in interest was recorded in the other income line item on the statement of operations for the year ended December 31, 2020.

On June 17, 2020, we entered into a securities purchase agreement with certain existinginstitutional and accredited investors, pursuant to which we issuedagreed to the investorsissue and sell in a registered direct offering an aggregate of 478,4692,200,000 shares of common stock at an offering price of $4.18$2.50 per share, for gross proceeds of approximately $2.0$5.50 million netbefore the deduction of fees and offering expenses of $15,000.

On DecemberJuly 6, 2019,2020, we entered into the a Securities Purchase Agreement,securities purchase agreement with certain institutional and accredited investors, pursuant to which we agreed to issue and sell in a registered direct offering an aggregate of 3,157,895 shares of our common stock at an offering price of $4.75 per share, for gross proceeds of approximately $15.00 million before the deduction of fees and offering expenses of $1.25 million.

On July 21, 2020, we entered into a securities purchase agreement with certain existing investors, pursuant to which we sold, in a registered direct offering an aggregate of 1,850,000 shares of common stock, par value $0.0001 per share, at an offering price of $5.00 per share for gross proceeds of $9.25 million before offering expenses of $0.74 million. Each purchaser also had the right to purchase, on or before October 19, 2020, additional shares of common stock (the “Additional Shares”) equal to the full amount of 75% of the common stock it purchased at the initial closing, or an aggregate of 1,387,500 shares, at price of $5.00 per share. On October 16, 2020, we entered into an addendum to the Agreement (the “Addendum”), which extended the deadline for each purchaser to exercise the right to purchase the Additional Shares by one year, to October 19, 2021. As of December 31, 2020, investors had elected to purchase 420,000 of the Additional Shares of common stock of AYRO, par value $0.0001 per share, at an offering price of $5.00 per share, for gross proceeds of approximately $2.10 million before offering expenses of $0.17 million. Between January 1, 2021 and March 30, 2021, investors had elected to purchase an additional 302,500 of the Additional Shares of common stock of AYRO, par value $0.0001 per share, at an offering price of $5.00 per share, for gross proceeds of approximately $1.51 million before the deduction of fees and offering expenses.

On November 22, 2020, we entered into a securities purchase agreement with certain institutional and accredited investors, pursuant to which we agreed to issue and sell in a registered direct offering an aggregate of 1,650,164 shares of our common stock, par value $0.0001 per share, at an offering price of $6.06 per share, for gross proceeds of approximately $10.00 million before the deduction of fees and offering expenses of $0.85 million. Pursuant to the securities purchase agreement, we issued to the investors unregistered Series A Warrants to purchase up to 1,237,624 shares of common stock and unregistered Series B Warrants to purchase up to 825,084 shares of common stock. The Series A Warrants are exercisable immediately upon issuance and terminate six months following issuance and are exercisable at an exercise price of $8.09 per share, subject to adjustment as set forth therein. The Series B Warrants are exercisable immediately upon issuance and terminate five years following issuance and are exercisable at an exercise price of $8.90 per share, subject to adjustment as set forth therein. In addition, subject to certain limitations, we have a call right with respect to the warrants.

On January 25, 2021, we entered into a securities purchase agreement with certain institutional and accredited investors, pursuant to which we agreed to issue and sell in a registered direct offering an aggregate of 34,7223,333,334 shares at an offering price of $6.00 per share, for gross proceeds of approximately $20.00 million before the deduction of fees and offering expenses. In a concurrent private placement, we sold to such investors warrants to purchase, at any time on or after July 26, 2021 and on or before July 26, 2023, additional shares of common stock equal to the full amount of the common stock it purchased at the initial closing, or an aggregate of 3,333,334 shares, at an exercise price of $6.93 per share.

On February 11, 2021, we entered into a securities purchase agreement with certain institutional and accredited investors, pursuant to which we agreed to issue and sell in a registered direct offering an aggregate of 4,400,001 shares of common stock at an offering price of $9.50 per share, for gross proceeds of approximately $41.8 million before the deduction of fees and offering expenses. Each purchaser was also granted the option to purchase, on or before February 16, 2022, additional shares of common stock equal to the full amount of 75% of the common stock it purchased at the initial closing, or an aggregate of 3,300,000 shares, at a purchase price of $11.50 per share.

Between May 28, 2020 (the Merger closing) and December 31, 2020, holders of warrants have exercised warrants to purchase an aggregate of 5,074,645 shares of our Series H-5 Sharescommon stock for aggregate net proceeds to us of $3.93 million. This is inclusive of warrants exercised as noted above.

Our business is capital intensive, and future capital requirements will depend on many factors including our growth rate, the timing and extent of spending to support development efforts, the expansion of our sales and marketing teams, the timing of new product introductions and the Series H-5 Warrants. continuing market acceptance of our products and services. We may also use capital for strategic acquisitions or transactions. We are subject to a number of risks similar to those of earlier stage commercial companies, including dependence on key individuals and products, the difficulties inherent in the development of a commercial market, the potential need to obtain additional capital, competition from larger companies, other technology companies and other technologies. Based on the foregoing, management believes that the existing cash at December 31, 2020, together with net proceeds of approximately $56.8 million raised through registered direct offerings in January 2021 and February 2021, will be sufficient to fund operations for at least the next twelve months following the date of this report.

Summary of Cash Flows

The following table summarizes our cash flows:

Operating Activities

During the year ended December 31, 2020, we used $10.02 million in cash in operating activities, an increase in use of $5.92 million when compared to the cash used in operating activities of $4.10 million during the same period in 2019. The increase in cash used in operating activities was primarily a result of prepayments for inventory and manufacturing services, an increase in accounts receivable, payments of accrued expenses, purchases of inventory and an increase in our operating loss as we continue to build our core business. This was offset by a reduction in cash used from our payments of outstanding accounts payable to Cenntro in March 2019 that did not occur in 2020.

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

Investing Activities

During the year ended December 31, 2020, we were provided cash of $2.54 million from investing activities as compared to $0.37 million cash used in investing activities during 2019, an increase of $2.91 million. The net increase was primarily due to proceeds of $3.06 million from the Merger.

Financing Activities

During the year ended December 31, 2020, we received net proceeds of an aggregate purchase price forof $39.86 million from the Series H-5 Shares and H-5 Warrants was approximately $2.3 million,issuance of common stock, net of offeringfees and expenses, $0.02 million from the exercise of $200,000.

Contractual Obligations and Commitments

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

Off-Balance Sheet Arrangements

Other than business and certain indemnification provisions, we do not have any off-balance sheet financing arrangements or liabilities, guarantee contracts, retained or contingent interests in transferred assets, or any obligation arising out of a material variable interest in an unconsolidated entity. Other than AYRO Operating Company, Inc. and DropCar Operating Company, Inc., we do not have any subsidiaries to include or otherwise consolidate into the consolidated financial statements. Additionally, we do not have interests in, nor relationships with, any special purpose entities.

Related Party Transactions

Supply Chain Agreements

In 2017, we executed a supply chain contract with Cenntro Automotive Group (“Cenntro”), our primary supplier, a manufacturer located in the People’s Republic of China. Through our partnership with Cenntro, Cenntro acquired 19% of AYRO Operating’s common stock in 2017. As of December 31, 2020, Cenntro beneficially owned approximately 4.38% of our common stock. Currently, we purchase 100% of our vehicle chassis, cabs and wheels through this supply chain relationship with Cenntro. We must sell a minimum number of units in order to maintain our exclusive supply chain contract. We were in default of the original exclusive term of the contract; however, in 2019 and 2020, the contract was amended to remove the default clause. In December 2019, Cenntro agreed to convert $1.10 million of trade accounts payable due from us to 299,948 shares of AYRO Operating’s Seed Preferred Stock. The parties also agreed that any accrued interest on the trades payable as a going concernresult of this conversion would be forgiven, which resulted in its report on our financial statements asa recapture of and forinterest expense in the amount of $0.17 million in the year ended December 31, 2019. Note 2As of December 31, 2020 and 2019, the amounts outstanding to Cenntro as a component of accounts payable were $0.05 million and $0.08 million, respectively. Under a memorandum of understanding signed between us and Cenntro on March 22, 2020, upon availability of the 411x product, we agreed to purchase 300 units within the twelve months following the signing of the memorandum of understanding, and 500 units and 800 units in each of the following respective twelve-month periods. On July 9, 2020, in exchange for certain percentage discounts for raw materials, we made a $1.2 million prepayment for inventory. As of December 31, 2020 and 2019, the prepayment deposits were $0.98 million and $0.05 million.

In October 2019, we borrowed $0.50 million under a bridge loan from Mark Adams, a founding board member. As an inducement for the bridge loan, we granted Mr. Adams 143,975 shares of common stock and in December 2019, the Company granted an additional 136,340 shares of common stock to Mr. Adams as consideration for extending the term date of the loan to April 30, 2021. In September 2020, the loan principal and accrued interest were paid in full.

On March 1, 2017, we entered into a royalty-based agreement with Sustainability Initiatives, LLC (“SI”) an entity that is controlled by Mark Adams, a former director of AYRO and AYRO Operating, and Christian Okonsky, a former director of AYRO Operating in the effort to accelerate our financialoperations. Royalties accrued were included as a component of research and development expense in the accompanying consolidated statements includes management’s discussion onof operations. In return for acceleration assistance and for serving as our abilityChief Visionary Officer, the agreement provided for a monthly retainer. On a quarterly basis, we remitted a royalty of a percentage (see table below) of company revenues less the retainer amounts.

Effective January 1, 2019, we agreed to fulfill our obligations as dependent upon our abilityan amendment with SI to raisereduce the royalty percentage to 0.5%. In relation to this amendment, we granted the SI members an additional financing.

On December 9, 2019, we expect our existing resourcesand the SI members agreed to support our operations may vary significantly from what we currently expect. Our monthly spending levels vary based on new and ongoing technology developments and corporate activities.

On April 1, 2017, we entered into a fee-for-service agreement with SI. In return for accounting, marketing, graphics and other services, we pay fixed, market-standard hourly rates under the issuanceshared services agreement as services are rendered. As of convertible notes. We will needDecember 31, 2020 and 2019, we had a balance outstanding to raise significant additional capitalSI for $0.01 million for both periods included in accounts payable. Total expenses paid or payable to SI were $0 and $0.06 million for the years ended December 31, 2020, and 2019, respectively.

In January 2019, we plan to continue to fund our current operations,entered into a fee-for-service consulting agreement with Sustainability Consultants, LLC, (“SCLLC”) an entity that is controlled by Mark Adams, Will Steakley and the associated losses from continuing operations, through future issuancesJohn Constantine, who were principal stockholders of debt and/or equity securities and potential collaborations or strategic partnerships with other entities. The capital raises from issuances of convertible debt and equity securities could resultAYRO Operating. In exchange for consulting services provided, we paid $0.19 million in additional dilution to our stockholders. In addition,consulting fees to the extent we determine to incur additional indebtedness, our incurrence of additional debt could result in debt service obligations and operating and financing covenants that would restrict our operations. We can provide no assurance that financing will be available in the amounts we need or on terms acceptable to us, if at all. If we are not able to secure adequate additional working capital when it becomes needed, we may be required to make reductions in spending, extend payment terms with suppliers, liquidate assets where possible and/or suspend or curtail operations. Any of these actions could materially harm our business.