AYRO(AYRO) - 2025 Q2 - Quarterly Report

PART I FINANCIAL INFORMATION This section covers the unaudited condensed consolidated financial statements and management's discussion and analysis ITEM 1. Financial Statements (Unaudited) This section presents the unaudited condensed consolidated financial statements for AYRO, Inc. and its subsidiaries, including the balance sheets, statements of operations, statements of changes in mezzanine equity and stockholders' equity, statements of cash flows, and accompanying notes, covering the periods ended June 30, 2025, and December 31, 2024 Condensed Consolidated Balance Sheets The balance sheet shows a significant decrease in total assets from $21.7 million at Dec 31, 2024, to $9.2 million at June 30, 2025. Current assets, particularly cash and cash equivalents, decreased substantially. Total liabilities increased from $9.5 million to $22.3 million, driven by a large increase in warrant liability and accrued preferred stock redemption payable. Stockholders' equity shifted from positive $4.7 million to a deficit of $(13.1) million Balance Sheet Key Metrics | Metric | December 31, 2024 | June 30, 2025 | | :----------------------------------- | :------------------ | :-------------- | | Total Assets | $21,738,718 | $9,194,816 | | Cash and cash equivalents | $16,035,475 | $5,132,867 | | Total Liabilities | $9,469,271 | $22,299,894 | | Warrant liability | $2,362,900 | $14,537,000 | | Accrued preferred stock redemption payable (H-7) | $1,285,680 | $5,900,153 | | Total Stockholders' Equity | $4,681,929 | $(13,105,078) | Condensed Consolidated Statements of Operations The company reported a net loss of $(13.3) million for the six months ended June 30, 2025, a significant decline from a net income of $3.3 million in the prior year period. Revenue dropped to zero, and while operating expenses decreased, a substantial loss from the change in fair value of warrant liability heavily impacted the net result Statements of Operations Key Metrics | Metric (Six Months Ended June 30) | 2024 | 2025 | Change ($) | Change (%) | | :---------------------------------- | :--------- | :----------- | :----------- | :--------- | | Revenue | $58,351 | $0 | $(58,351) | -100% | | Gross loss | $(2,199,752) | $(239,040) | $1,960,712 | 89.1% | | Total operating expenses | $6,976,058 | $3,522,826 | $(3,453,232) | -49.5% | | Loss from operations | $(9,175,810) | $(3,761,866) | $5,413,944 | 59.0% | | Change in fair value - warrant liability | $9,010,300 | $(12,174,100) | $(21,184,400) | -235.1% | | Net income (loss) | $3,275,868 | $(13,298,007) | $(16,573,875) | -506.0% | | Net income (loss) per share basic | $(8.55) | $(33.52) | $(24.97) | -292.0% | Condensed Consolidated Statements of Changes in Mezzanine Equity and Stockholders' Equity The statement shows a shift from positive stockholders' equity of $4.68 million at January 1, 2025, to a deficit of $(13.1) million by June 30, 2025. This change is primarily due to net losses, preferred stock redemptions, and accretion of discounts to redemption value of Series H-7 convertible preferred stock Changes in Equity Key Metrics | Metric | January 1, 2025 | June 30, 2025 | | :------------------------------------------------ | :-------------- | :-------------- | | Total Stockholders' Equity | $4,681,929 | $(13,105,078) | | Net income (loss) for six months ended June 30, 2025 | N/A | $(13,298,007) | | Preferred stock redemptions and conversions (cash premium) | N/A | $(6,404,587) (Q1) + $(5,473,475) (Q2) | | Accretion of discounts to redemption value of Series H-7 | N/A | $1,686,854 (Q1) + $1,562,047 (Q2) | Condensed Consolidated Statements of Cash Flows For the six months ended June 30, 2025, the company experienced a net decrease in cash, cash equivalents, and restricted cash of $(10.9) million, compared to a decrease of $(29.3) million in the prior year. Operating activities used $(4.1) million, investing activities provided $1.0 million (a significant improvement from prior year's use), and financing activities used $(7.9) million, mainly due to preferred stock redemptions Cash Flow Summary | Cash Flow Activity (Six Months Ended June 30) | 2024 | 2025 | Change ($) | | :-------------------------------------------- | :----------- | :----------- | :----------- | | Net cash used in operating activities | $(6,834,066) | $(4,100,960) | $2,733,106 | | Net provided by (cash used in) investing activities | $(22,153,128) | $1,024,773 | $23,177,901 | | Net cash used in financing activities | $(362,573) | $(7,881,527) | $(7,518,954) | | Net change in cash, cash equivalents and restricted cash | $(29,349,767) | $(10,957,714) | $18,392,053 | | Cash, cash equivalents and restricted cash, end of period | $14,091,100 | $5,242,443 | $(8,848,657) | Notes to Condensed Consolidated Financial Statements (Unaudited) These notes provide detailed explanations and disclosures for the condensed consolidated financial statements, covering the company's organization, liquidity, accounting policies, share information, specific balance sheet accounts, equity changes, risks, commitments, fair value measurements, segment reporting, related-party transactions, and significant subsequent events NOTE 1. ORGANIZATION AND NATURE OF OPERATIONS AYRO, Inc. historically manufactured and sold electric vehicles but recently initiated a digital asset-based treasury strategy, acquiring crypto tokens in the stablecoin industry. A 1-for-16 reverse stock split was effected on June 25, 2025 - The Company has historically been engaged in manufacturing and sales of environmentally conscious, minimal-footprint electric vehicles[20] - Recently, the Company began a digital asset-based treasury strategy, involving the deployment of corporate treasury assets for the acquisition of crypto tokens that are directly capitalizing on the rapid growth of the stablecoin industry[20] - A 1-for-16 reverse stock split of the Company's common stock was effected on June 25, 2025, with trading on a split-adjusted basis beginning June 26, 2025[21] NOTE 2. LIQUIDITY AND GOING CONCERN The company reported a net loss of $13.3 million and negative cash flow from operations of $4.1 million for the six months ended June 30, 2025, leading management to conclude there is substantial doubt about its ability to continue as a going concern for the next twelve months without raising additional capital - The Company had a net loss of $13,298,007 and negative cash flow used in operations of $4,100,960 for the six months ended June 30, 2025[23] - Overall working capital decreased by $15,870,447 during the six months ended June 30, 2025[23] - Management believes that existing cash as of June 30, 2025, will not be sufficient to fund operations for at least the next twelve months, raising substantial doubt about the Company's ability to continue as a going concern[24] NOTE 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The financial statements are prepared in accordance with GAAP and SEC regulations, consolidating the company and its wholly-owned subsidiary. Certain cash flow statement line items for 2024 were reclassified for comparative presentation, specifically marketable securities proceeds and purchases - The unaudited condensed consolidated financial statements have been prepared in accordance with GAAP and SEC regulations, including the accounts of the Company and its wholly-owned subsidiary[26] - Certain line items in the unaudited condensed consolidated statements of cashflows for the six months ended June 30, 2024, were reclassified to show gross proceeds from sale of marketable securities and purchase of marketable securities, instead of net[27] NOTE 4. BASIC AND DILUTED NET LOSS PER SHARE For the six months ended June 30, 2025, basic and diluted net loss per share attributable to common stockholders was $(33.52), compared to $(8.55) in the prior year. Potentially dilutive securities, including options, warrants, and preferred stock, were excluded from diluted EPS calculation as they were anti-dilutive due to the net loss Net Loss Per Share Metrics | Metric (Six Months Ended June 30) | 2025 | 2024 | | :---------------------------------- | :----- | :----- | | Net income (loss) attributable to common stockholders | $(18,251,102) | $(2,817,475) | | Basic weighted average Common Stock outstanding | 544,474 | 329,422 | | Net income (loss) per share basic | $(33.52) | $(8.55) | | Diluted weighted average Common Stock outstanding | 544,474 | 329,422 | | Net income (loss) per share diluted | $(33.52) | $(8.55) | - Potentially dilutive securities (options, warrants, preferred stock) were excluded from diluted weighted average shares outstanding for both periods as they would be anti-dilutive due to the net loss[28] NOTE 5. PREPAID EXPENSES AND OTHER CURRENT ASSETS Prepaid expenses and other current assets significantly decreased from $972,245 at December 31, 2024, to $296,823 at June 30, 2025, primarily due to reductions in prepayments for inventory, insurance, and other prepaid items Prepaid Expenses and Other Current Assets | Prepaid Expense Category | December 31, 2024 | June 30, 2025 | | :----------------------- | :---------------- | :-------------- | | Prepayments for inventory | $401,675 | $0 | | Prepayments for insurance | $172,221 | $113,671 | | Prepayments for software | $93,316 | $76,390 | | Prepaid other | $305,033 | $106,762 | | Total | $972,245 | $296,823 | NOTE 6. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES Accrued expenses and other current liabilities decreased from $793,819 at December 31, 2024, to $431,308 at June 30, 2025, mainly driven by a reduction in accrued cash-settled restricted stock tax withholding and other accrued expenses Accrued Expenses and Other Current Liabilities | Accrued Expense Category | December 31, 2024 | June 30, 2025 | | :------------------------------------ | :---------------- | :-------------- | | Accrued professional and consulting fees | $40,009 | $41,085 | | Accrued severance | $277,126 | $247,333 | | Accrued cash-settled restricted stock tax withholding | $285,250 | $12,493 | | Accrued expenses other | $122,565 | $51,587 | | Accrued current liabilities | $68,869 | $78,810 | | Total | $793,819 | $431,308 | NOTE 7. STOCKHOLDERS' EQUITY The company increased authorized common stock shares from 200 million to 1.2 billion. Series H-7 Warrants and Preferred Stock underwent multiple anti-dilution adjustments, including a reverse stock split, significantly altering conversion and exercise prices and the number of underlying shares. The company also entered into waiver and amendment agreements regarding Series H-7 Preferred Stock, extending its maturity date and modifying payment terms, and recognized significant preferred dividends and accretion of discounts - On May 23, 2025, the Company increased the number of authorized shares of common stock from 200,000,000 to 1,200,000,000[32] - The Series H-7 Warrants' exercise price was adjusted from $32.00 to $6.1933 per share, and the number of shares issuable upon exercise increased to 3,623,270 due to a 1-for-16 reverse stock split and other anti-dilution provisions[33][37] - The Series H-7 Preferred Stock conversion price was adjusted from $128.00 to $6.1933 per share due to anti-dilution provisions and a reverse stock split[37] - The Company recognized $1,704,194 in net preferred dividends for the six months ended June 30, 2025[43] Stock Option Activity | Stock Option Activity | December 31, 2024 | June 30, 2025 | | :-------------------- | :------------------ | :-------------- | | Number of Shares Outstanding | 479 | 14,542 | | Weighted Average Exercise Price | $5,250 | $181.80 | | Weighted Average Remaining Contractual Life (Years) | 3.45 | 9.61 | - The Company recognized $69,480 of stock-based compensation expense for the six months ended June 30, 2025[47][48] NOTE 8. CONCENTRATIONS AND CREDIT RISK There were no significant supplier concentrations for the three and six months ended June 30, 2025 and 2024 - There were no significant supplier concentrations for the three and six months ended June 30, 2025 and 2024[49] NOTE 9. COMMITMENTS AND CONTINGENCIES The company settled a breach of contract claim with Lithion Battery Inc. for $540,000 related to a battery purchase agreement. Management believes other ongoing legal proceedings will not have a material adverse effect on its financial position - The Company settled a breach of contract claim with Lithion Battery Inc. for $540,000 on July 28, 2025, resolving all claims related to a battery purchase agreement[50][64] - Management does not believe that the outcome of other legal matters will have a material adverse effect on its results of operations, financial positions, or cash flows[51] NOTE 10. FAIR VALUE MEASUREMENTS The company measures marketable securities and money market accounts at Level 1 fair value. Warrant liability and bifurcated embedded derivatives are measured at Level 3, with significant changes in fair value recognized in earnings. The warrant liability increased substantially, while the derivative liability was extinguished by June 30, 2025 - Marketable securities and money market accounts are measured at Level 1 fair value[53] - Warrant liability and bifurcated embedded derivatives are measured at Level 3 fair value[53] Fair Value Liabilities | Liability | December 31, 2024 | June 30, 2025 | | :-------------------------- | :------------------ | :-------------- | | Warrant liability | $2,362,900 | $14,537,000 | | Derivative liability | $2,661,000 | $0 | - The Company recorded a loss of $12,174,100 related to the change in fair value of the Series H-7 Warrant liability for the six months ended June 30, 2025[54] - The Company recorded income of $2,661,000 related to the change in fair value of the derivative liability for the six months ended June 30, 2025, as the liability was extinguished[56] NOTE 11. SEGMENT REPORTING The company operates as a single business segment focused on manufacturing and sales of environmentally-conscious electric vehicles. The Executive Chairman and Principal Executive Officer serves as the chief operating decision maker, reviewing consolidated profit and loss and total assets - The Company currently operates as one business segment, focusing on the manufacturing and sales of environmentally-conscious, minimal-footprint EVs[57] - The Company's Executive Chairman and Principal Executive Officer is the chief operating decision maker (CODM), reviewing consolidated profit and loss and total assets[57] Operating Expenses by Segment | Operating Expenses (Six Months Ended June 30) | 2024 | 2025 | | :-------------------------------------------- | :----------- | :----------- | | Consulting expenses | $2,883,330 | $1,898,841 | | Personnel expenses | $2,292,695 | $699,682 | | Other expenses | $1,800,033 | $924,303 | | Total operating expenses | $6,976,058 | $3,522,826 | NOTE 12. RELATED-PARTY TRANSACTIONS The company incurred significant related-party expenses with Electric Power Energy, an entity owned by Gilbert Villarreal (President of AYRO Operating), for research and development and general and administrative services, totaling $865,498 for the six months ended June 30, 2025 Related-Party Incurred Expenses | Related-Party Incurred Expenses (Six Months Ended June 30) | 2024 | 2025 | | :--------------------------------------------------------- | :--- | :--------- | | Electric Power Energy (Research and development) | $0 | $390,204 | | Electric Power Energy (General and administrative) | $0 | $475,294 | | Total | $0 | $865,498 | Related-Party Liabilities | Related-Party Liabilities (June 30, 2025) | Amount | | :---------------------------------------- | :------- | | Electric Power Energy (Accounts Payable) | $31,526 | | Electric Power Energy (Accrued expenses and other current liabilities) | $21,437 | | Total | $52,963 | NOTE 13. SUBSEQUENT EVENTS Subsequent events include the settlement of the Lithion Battery Inc. dispute, the declaration of a preferred share purchase right dividend, an August 2025 financing round raising $7 million through Series I Convertible Preferred Stock and warrants, and a consulting agreement with James Altucher and Z-List Media, Inc. involving the issuance of warrants for 1 million common shares - On July 28, 2025, the Company settled a dispute with Lithion Battery Inc. by paying $540,000[64] - On August 4, 2025, the Company completed a private placement, raising $7,000,000 gross proceeds from the sale of Series I Convertible Preferred Stock and Series I Warrants[66] - On August 4, 2025, the Company entered into a consulting agreement with James Altucher and Z-List Media, Inc., issuing warrants to purchase up to 1,000,000 shares of common stock[70][71] ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial condition and results of operations, including an overview of its business strategy, recent developments, detailed analysis of revenue and expenses, liquidity, capital resources, and known trends and uncertainties, particularly regarding its strategic shift to digital assets Overview AYRO, Inc. historically designed and manufactured compact electric vehicles but has recently shifted its business strategy to a digital asset-based treasury strategy, focusing on acquiring crypto tokens capitalizing on the stablecoin industry for long-term capital appreciation and yield generation - The Company has historically designed and manufactured compact, sustainable electric vehicles[77] - Recently, the Company began a digital asset-based treasury strategy, deploying corporate treasury assets for the acquisition of crypto tokens capitalizing on the rapid growth of the stablecoin industry[77] - The strategy targets tokens supporting stablecoin issuance and infrastructure, aiming for long-term capital appreciation and consistent yield generation[77] Business Strategy Historically, the company aimed to develop and commercialize automotive-grade electric transportation solutions. The current strategy involves evaluating operations for market alignment, identifying underserved EV markets, and investing in R&D for purpose-built electric vehicles and mobility services - Historically, the Company's goal has been to develop and commercialize automotive-grade, sustainable electric transportation solutions[78] - The business strategy includes evaluating operations for market conditions, identifying underserved EV markets, and focusing development on purpose-built electric vehicles[78] - The strategy also involves investing in R&D and qualification of sensors, cameras, software, and mobility services to enhance vehicle value and derive incremental revenue streams[78] Product Development and Future Strategy This section details the company's strategic shift from electric vehicle manufacturing to digital asset initiatives, including recent corporate actions and financing activities supporting this transition Recent Developments The company commenced a strategic transition to a digital asset-based business model in July 2025, targeting $100 million in crypto assets within the stablecoin ecosystem. Key recent events include settling a manufacturing agreement dispute, terminating a GM partnership, entering a consulting agreement with James Altucher for digital asset initiatives, increasing authorized common stock, effecting a reverse stock split, and securing $7 million in August 2025 financing - In July 2025, the Company commenced a strategic transition toward a new business model focused on digital asset initiatives, targeting up to $100 million in crypto assets within the stablecoin industry[80] - The Company settled a breach of contract claim with Lithion Battery Inc. for $540,000 on July 28, 2025[81] - General Motors LLC cancelled its development projects with the Company effective August 8, 2025[82] - On August 4, 2025, the Company entered into a consulting agreement with James Altucher and Z-List Media, Inc. for services related to digital asset initiatives, issuing warrants for 1,000,000 common shares[83][84] - On May 23, 2025, stockholders approved an increase in authorized common stock from 200,000,000 to 1,200,000,000 shares[85] - A 1-for-16 reverse stock split was effected on June 25, 2025[86] - On August 4, 2025, the Company secured $7,000,000 in gross proceeds from a private placement of Series I Convertible Preferred Stock and warrants[87] Components of Results of Operations This section outlines the primary components of the company's financial results: Revenue (expected upon Vanish re-engineering), Cost of Goods Sold (materials, personnel, warranty, inventory adjustments), Operating Expenses (general & administrative, R&D, sales & marketing), Other (Expense) Income (interest, fair value changes of warrants/derivatives), and Provision for Income Taxes - Revenue is expected to be recognized upon successful re-engineering of the Vanish[88] - Cost of goods sold primarily includes materials, personnel, warranty claims, inventory adjustments, and freight[89] - Operating expenses consist of general and administrative, and research and development expenses, with third-party consulting services being a significant component[90] - Sales and marketing efforts are on hold pending the re-engineering of the Vanish[92] - Other (expense) income primarily consists of interest income, unrealized gain/loss on marketable securities, and changes in fair value of warrant and derivative liabilities[94] Results of Operations This section provides a comparative analysis of the company's financial performance for the three and six months ended June 30, 2025, versus the same periods in 2024, highlighting significant changes in revenue, expenses, and net income (loss) Six months ended June 30, 2025, compared to six months ended June 30, 2024 For the six months ended June 30, 2025, the company reported a net loss of $(13.3) million, a significant decrease from a net income of $3.3 million in the prior year. Revenue dropped to zero, and while operating expenses decreased across R&D, sales & marketing, and G&A due to cost reduction initiatives and completion of R&D, a substantial $(21.2) million negative change in fair value of warrant liability was the primary driver of the increased net loss Comparative Results of Operations (Six Months) | Metric (Six Months Ended June 30) | 2024 | 2025 | Change ($) | Change (%) | | :---------------------------------- | :--------- | :----------- | :----------- | :--------- | | Revenue | $58,351 | $0 | $(58,351) | -100% | | Cost of goods sold | $2,258,103 | $239,040 | $(2,019,063) | -89% | | Research and development expense | $1,382,984 | $657,681 | $(725,303) | -52% | | Sales and marketing expense | $553,390 | $0 | $(553,390) | -100% | | General and administrative expense | $5,039,684 | $2,865,145 | $(2,174,539) | -43% | | Change in fair value - warrant liability | $9,010,300 | $(12,174,100) | $(21,184,400) | -235.1% | | Net income (loss) | $3,275,868 | $(13,298,007) | $(16,573,875) | -506.0% | Three months ended June 30, 2025, compared to three months ended June 30, 2024 For the three months ended June 30, 2025, the company recorded a net loss of $(14.1) million, a substantial decline from a net income of $6.9 million in the same period of 2024. Revenue remained zero. Operating expenses decreased due to cost reduction and R&D completion. The primary factor for the increased net loss was a $(21.2) million negative change in the fair value of warrant liability Comparative Results of Operations (Three Months) | Metric (Three Months Ended June 30) | 2024 | 2025 | Change ($) | Change (%) | | :---------------------------------- | :--------- | :----------- | :----------- | :--------- | | Revenue | $0 | $0 | $0 | 0% | | Cost of goods sold | $1,074,896 | $239,040 | $(835,856) | -77.8% | | Research and development expense | $622,567 | $349,951 | $(272,616) | -43.8% | | Sales and marketing expense | $285,035 | $0 | $(285,035) | -100% | | General and administrative expense | $1,977,358 | $1,199,323 | $(778,035) | -39.3% | | Change in fair value - warrant liability | $7,937,500 | $(13,254,700) | $(21,192,200) | -267.0% | | Net income (loss) | $6,914,620 | $(14,143,018) | $(21,057,638) | -304.5% | Off-Balance Sheet Commitments and Arrangements The company has not entered into any off-balance sheet financial guarantees, other off-balance sheet commitments, derivative contracts indexed to its shares, or retained/contingent interests in assets transferred to unconsolidated entities - The Company has not entered into any off-balance sheet financial guarantees or other off-balance sheet commitments[113] - The Company has not entered into any derivative contracts indexed to its shares or retained/contingent interests in assets transferred to unconsolidated entities[113] Liquidity and Capital Resources This section discusses the company's current financial liquidity, capital needs, and strategies for funding operations, including details on Series H-7 and Series I Preferred Stock, and the new multi-token investment strategy Overview of Liquidity and Capital Resources As of June 30, 2025, the company had $5.1 million in cash and cash equivalents and $1.2 million in working capital, a significant decrease from December 31, 2024, primarily due to Series H-7 Preferred Stock redemptions. Management believes existing cash is insufficient for the next twelve months and will require additional equity or debt capital, with a new strategy to invest up to $100 million in stablecoin-linked crypto tokens Liquidity and Capital Resources Summary | Metric | December 31, 2024 | June 30, 2025 | | :----------------------- | :------------------ | :-------------- | | Cash and cash equivalents | $16,035,475 | $5,132,867 | | Restricted cash | $164,682 | $109,576 | | Marketable securities | $4,089,832 | $3,291,450 | | Working capital | $17,100,605 | $1,230,158 | - The decrease in cash and working capital was primarily a result of the payment of Series H-7 Preferred Stock redemptions[114] - Management believes existing cash and marketable securities at June 30, 2025, will not be sufficient to fund operations for at least the next twelve months[118] - The Company intends to use capital in excess of working capital requirements to invest in digital assets linked to stablecoin, targeting $100 million in crypto tokens[117] Series H-7 Preferred Stock The Series H-7 Preferred Stock, issued in August 2023, is convertible into common stock with an initial conversion price of $128.00, adjusted multiple times to $6.1933 per share due to anti-dilution provisions and a reverse stock split. The company is required to redeem these shares in monthly installments, payable in cash or common stock. Recent amendments extended the maturity date to February 4, 2027, and revised payment schedules - Series H-7 Preferred Stock was issued in August 2023, initially convertible at $128.00 per share[119][120] - The conversion price was adjusted to $6.1933 per share due to anti-dilution provisions and a 1-for-16 reverse stock split[120] - The Company is required to redeem Series H-7 Preferred Stock in 12 equal monthly installments, payable in cash (105% of redemption amount) or common stock[121] - Amendments on August 4, 2025, extended the maturity date to February 4, 2027, and revised dividend and installment payment dates[132] Series I Preferred Stock In August 2025, the company completed a private placement of 7,000 shares of newly-designated Series I Convertible Preferred Stock and warrants, raising $7 million. These shares are convertible into common stock at an initial price of $8.00 per share and are subject to redemption in installments starting November 30, 2025, with a maturity date of February 4, 2027. The company must seek stockholder approval for certain share issuances and maintain specific cash reserves - On August 4, 2025, the Company sold 7,000 shares of Series I Convertible Preferred Stock and warrants, raising $7,000,000 gross proceeds[133] - Series I Preferred Stock is convertible into common stock at an initial conversion price of $8.00 per share[137] - Redemption of Series I Preferred Stock begins November 30, 2025, in equal installments until the maturity date of February 4, 2027[137] - The Company is required to maintain unencumbered, unrestricted cash and cash equivalents equal to at least 50% of the aggregate Stated Value of outstanding Series I Preferred Stock[142] Summary of Cash Flows For the six months ended June 30, 2025, net cash used in operating activities decreased to $(4.1) million, cash provided by investing activities significantly improved to $1.0 million, and net cash used in financing activities increased to $(7.9) million, primarily due to preferred stock redemptions Cash Flow Summary Table | Cash Flow Activity (Six Months Ended June 30) | 2024 | 2025 | | :-------------------------------------------- | :----------- | :----------- | | Net cash used in operating activities | $(6,834,066) | $(4,100,960) | | Net provided by (cash used in) investing activities | $(22,153,128) | $1,024,773 | | Net cash used in financing activities | $(362,573) | $(7,881,527) | Operating Activities Net cash used in operating activities decreased by $2.7 million to $(4.1) million for the six months ended June 30, 2025, primarily due to a $2.8 million improvement in net loss adjusted for non-cash items, a decrease in cash used in inventory, and an increase in cash provided by prepaid expenses, partially offset by a decrease in cash provided by accounts payable - Net cash used in operating activities decreased by $2,733,106 to $(4,100,960) for the six months ended June 30, 2025[146] - This decrease was primarily due to a $2,840,266 improvement in net loss after non-cash adjustments[146] - Cash used in inventory decreased by $1,704,756 to $0, mainly due to a temporary pause in procurement and manufacturing[146] Investing Activities Investing activities provided $1.0 million in cash for the six months ended June 30, 2025, a significant improvement from $22.2 million cash used in the prior year. This was driven by a reduction in purchases of marketable securities and proceeds from sales - Cash provided by investing activities was $1,024,773 for the six months ended June 30, 2025, an increase of $23,177,901 compared to the prior year[148] - The Company used $23,257,290 to invest in marketable securities and received $24,282,063 in proceeds from sales for the six months ended June 30, 2025[148] Financing Activities Net cash used in financing activities increased to $(7.9) million for the six months ended June 30, 2025, from $(0.4) million in the prior year, primarily due to increased cash redemptions of Series H-7 Preferred Stock - Net cash used in financing activities increased by $7,518,954 to $(7,881,527) for the six months ended June 30, 2025[149] - The increase in cash used was primarily due to cash redemptions of the Series H-7 Preferred Stock[149] Known Trends, Events, and Uncertainties The company highlights risks from public health crises and geopolitical conflicts impacting macroeconomic conditions. Significant uncertainties and volatility risks are associated with its new multi-token investment strategy in the stablecoin industry, including regulatory ambiguity, potential loss of stablecoin peg, and technological vulnerabilities - Public health crises and geopolitical conflicts could adversely impact macroeconomic conditions and increase market volatility[150] - The multi-token investment strategy in stablecoins is subject to risks including market volatility, regulatory uncertainty, and technological vulnerabilities[151][152] - Stablecoins face volatility risks due to issuer discretion over backing assets and potential inability to liquidate assets during mass redemptions, which could undermine public confidence[151] Critical Accounting Estimates The preparation of financial statements requires management to make estimates, assumptions, and judgments, particularly for highly uncertain matters. Critical accounting estimates have not materially changed from those reported in the Form 10-K - The preparation of financial statements requires management to make estimates, assumptions, and judgments, especially for highly uncertain matters[154][155] - Critical accounting estimates have not materially changed from those previously reported in the Company's Form 10-K[156] ITEM 3. Quantitative and Qualitative Disclosure About Market Risk This section states that it is "Not applicable," indicating no material quantitative or qualitative disclosures about market risk are provided - This section is marked as 'Not applicable', indicating no material quantitative or qualitative disclosures about market risk are provided[158] ITEM 4. Controls and Procedures This section addresses the effectiveness of the company's disclosure controls and procedures and internal control over financial reporting, identifying a continuing material weakness and outlining remediation efforts Disclosure Controls and Procedures Effectiveness As of June 30, 2025, the company's disclosure controls and procedures were deemed ineffective by management due to a material weakness in internal control over financial reporting - As of June 30, 2025, the Company's Chief Executive Officer and Chief Financial Officer concluded that disclosure controls and procedures were ineffective[160] - The ineffectiveness is due to a material weakness in internal control over financial reporting[160] Management's Report on Internal Control Over Financial Reporting Management concluded that internal control over financial reporting was not effective as of December 31, 2024, citing issues with documenting and testing controls, maintaining effective control activities, and insufficient segregation of duties and oversight in finance and accounting functions due to limited resources - Management assessed internal control over financial reporting as ineffective as of December 31, 2024[162] - Reasons for ineffectiveness include inability to document/implement controls, failure to maintain/test effective control activities, and insufficient segregation of duties/oversight in finance and accounting functions due to limited personnel[162] Material Weakness and Remediation Plan The material weakness in internal control over financial reporting, identified as of December 31, 2024, persists as of June 30, 2025. Remediation efforts include engaging external consultants for technical accounting support and enhancing corporate oversight over process-level controls - The material weakness in internal control over financial reporting identified as of December 31, 2024, continues to exist as of June 30, 2025[163] - Remediation plans include engaging external consultants for technical accounting support and enhancing corporate oversight over process-level controls[164][165] Changes in Internal Control over Financial Reporting Other than the material weakness discussed, there were no changes in internal control over financial reporting during the most recent fiscal quarter that materially affected or are reasonably likely to materially affect it - No material changes in internal control over financial reporting occurred during the most recent fiscal quarter, other than the material weakness discussed[166] PART II OTHER INFORMATION This section includes legal proceedings, risk factors, equity sales, defaults, and other disclosures ITEM 1. Legal Proceedings The company is involved in various legal proceedings in the ordinary course of business. Information regarding commitments and contingencies, including a recent settlement, is incorporated by reference from Note 9. No material proceedings involve directors, officers, or significant stockholders adversely - The Company is subject to various legal proceedings and claims arising in the ordinary course of business[51][167] - Information regarding commitments and contingencies is incorporated by reference from Note 9[168] - Management does not believe any legal matters will have a material adverse effect on its results of operations, financial positions, or cash flows[51] ITEM 1A. Risk Factors This section outlines significant risks to the company's business, financial condition, and operating results, including substantial doubt about its ability to continue as a going concern, and various risks associated with its new multi-token investment strategy in the stablecoin industry, such as market volatility, regulatory uncertainty, and tax implications Going Concern Risk The company's financial statements are prepared on a going concern basis, but management has substantial doubt about its ability to continue as a going concern due to recurring losses and insufficient liquidity. Additional capital raising is necessary, with no assurance of favorable terms - The Company's financial statements are prepared on a going concern basis, but management has substantial doubt about its ability to continue as a going concern[171] - This doubt stems from recurring losses and insufficient resources to fund operations for the next twelve months[171] - The Company will need to raise additional capital, with no assurance of favorable terms, or risk reducing/ceasing operations[172] Multi-Token Investment Strategy Risks The new multi-token investment strategy targeting the stablecoin industry exposes the company to significant risks, including extreme price volatility, liquidity constraints, rapid shifts in market sentiment, evolving regulatory uncertainty, potential loss of stablecoin peg, operational failures of issuers, and technological vulnerabilities like theft or hacking - The new multi-token investment strategy targeting the stablecoin industry exposes the Company to significant risks, including extreme price volatility, liquidity constraints, and rapid shifts in market sentiment[173] - Regulatory uncertainty for digital assets and stablecoins could adversely impact the viability and value of investments[174] - Risks related to custody, cybersecurity, and technology, such as theft, hacking, or loss of access, could materially harm the business[175][176] Volatility Risks Related to Stablecoin Stablecoins, despite being designed for price stability, face volatility risks due to issuer discretion over backing assets, potential inability to liquidate assets during mass redemptions, and concerns about underlying liquidity and reserves. Failure of an issuer to honor redemptions could undermine confidence in digital assets - Stablecoins are subject to volatility risks due to issuer discretion over backing assets and potential inability to liquidate assets during mass redemptions[177] - Concerns exist about the actual underlying liquidity and reserves for dollar stablecoins like USDT and USDC[177] - Failure of a stablecoin issuer to honor redemption obligations could undermine public confidence in stablecoins and digital assets more broadly[177] Impact of Political or Economic Crises on Digital Assets Geopolitical or economic crises could trigger large-scale acquisitions or sales of digital assets, leading to a reduction in their value and materially affecting the company's investment and trading strategies - Political or economic crises could motivate large-scale acquisitions or sales of digital assets[178] - Large-scale sales of digital assets would reduce their value and could materially and adversely affect the Company's investment and trading strategies[178] U.S. Federal Income Tax Treatment of Digital Assets The U.S. federal income tax treatment of digital assets is uncertain and evolving, with potential for adverse tax consequences. Recent legislation (IIJA) and regulations (July final regulations) introduce comprehensive tax information reporting rules for digital asset transactions, creating compliance burdens and uncertainties, though some December final regulations were repealed - Many significant aspects of the U.S. federal income tax treatment of digital assets are uncertain, potentially leading to adverse tax consequences[179][180] - The Infrastructure Investment and Jobs Act (IIJA) implements comprehensive tax information reporting rules for digital asset transactions, requiring brokers to report certain transactions[182] - Final regulations released in July 2024 define 'broker' broadly for reporting purposes, but December 2024 final regulations for non-custodial participants were repealed, creating further uncertainty[183] State, Local, and Non-U.S. Tax Treatment of Digital Assets The tax treatment of digital assets at state, local, and non-U.S. levels is unclear and may differ from federal treatment, potentially leading to adverse tax consequences and affecting digital asset prices - The tax treatment of digital assets for state, local, and non-U.S. tax purposes is unclear and may differ from U.S. federal treatment[185][186] - Future guidance on state or local tax treatment could result in adverse tax consequences and affect digital asset prices[185] ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds This section states "None," indicating no unregistered sales of equity securities or use of proceeds to report - There were no unregistered sales of equity securities or use of proceeds to report[187] ITEM 3. Defaults Upon Senior Securities This section states "None," indicating no defaults upon senior securities to report - There were no defaults upon senior securities to report[188] ITEM 4. Mine Safety Disclosures This section is marked as 'Not applicable,' indicating no mine safety disclosures are relevant - This section is marked as 'Not applicable', indicating no mine safety disclosures are relevant[189] ITEM 5. Other Information Joshua Silverman was appointed Chief Executive Officer, effective August 14, 2025, with an employment agreement detailing a $300,000 annual base salary, eligibility for annual bonuses and long-term incentive awards, and severance provisions for various termination scenarios - Joshua Silverman was appointed Chief Executive Officer, effective August 14, 2025[190] - His employment agreement includes an annual base salary of $300,000, eligibility for annual bonuses, and long-term incentive awards[192][193] - The agreement outlines severance provisions for termination without cause or for good reason, including accelerated vesting of equity awards[194][195] ITEM 6. Exhibits This section lists various exhibits filed with the report, including amendments to the Certificate of Incorporation, forms of preferred stock designations and warrants, a Rights Agreement, a Purchase Agreement, a Registration Rights Agreement, a Consulting Services Agreement, an Omnibus Waiver, Consent, Notice and Amendment, and the CEO's Employment Agreement, along with certifications - Exhibits include amendments to the Certificate of Incorporation (3.1-3.3), forms of preferred stock designations (3.4, 3.5), and various warrant forms (4.1, 4.2)[199] - Key agreements filed as exhibits include a Rights Agreement (4.3), a Form of Purchase Agreement (10.1), a Registration Rights Agreement (10.2), a Consulting Services Agreement (10.3), and an Omnibus Waiver, Consent, Notice and Amendment (10.4)[199] - The Employment Agreement for Joshua Silverman (10.5†) and certifications (31.1**, 31.2**, 32.1*, 32.2*) are also included[199] SIGNATURES The report is duly signed on behalf of AYRO, INC. by Joshua Silverman, Chief Executive Officer, and Joseph Ramelli, Chief Financial Officer, on August 14, 2025 - The report is signed by Joshua Silverman, Chief Executive Officer, and Joseph Ramelli, Chief Financial Officer, on August 14, 2025[202]