Financing Arrangements

12 Months Ended

Dec. 31, 2020

Debt Disclosure [Abstract]

Financing Arrangements

NOTE 9. FINANCING ARRANGEMENTS

The composition of the Company’s debt and financing obligations was as follows:

	As of December 31,
	2020			2019
2019 $500,000 Founder Bridge Note	$	-		$	500,000
2019 Vendor Payable Conversion Note		-			137,729
2019 $1,000,000 Convertible Bridge Notes		-			1,000,000
Note payable – auto financing		21,608			28,555
		21,608			1,666,284
Less: debt discount		-			(341,310	)
		21,608			1,324,974
Less: current portion		(7,548	)		(1,006,947	)
Long-term debt	$	14,060		$	318,027

Auto Financing

In August of 2018, the Company entered into an auto financing arrangement with an auto lender (“Auto Financing Note”) in the amount of $36,962. The Auto Financing Note carries a maturity date of August 31, 2023, at a 8.34% interest rate. Interest expense for the years ended December 31, 2020 and 2019, was $2,119 and $2,673, respectively.

Financing arrangements settled during the periods presented are as follows:

2019 $500,000 Founder Bridge Note

In October 2019, the Company received $500,000 under a 120-day bridge term loan (the “Founder Bridge Note”), bearing interest at the rate of 14% per annum, payable quarterly, from Mark Adams, a founding board member. As an inducement for the bridge loan, the Company granted Mr. Adams 143,975 shares of common stock. On December 13, 2019, Mr. Adams agreed to modify the terms of the note and extend the maturity date until April 30, 2021 in exchange for the issuance of 136,340 shares of common stock. A discount on debt of $398,017 was recorded and amortized over the life of the loan as a component of interest expense on the accompanying consolidated statements of operations. The discount was calculated by allocating the relative fair value of the underlying equity grant, determined using the relative fair market value method to ascribe the value of the common stock at the time of the grant, relative to the face value of the loan to arrive at the total debt discount. On September 30, 2020, the Company repaid the Founder Bridge Note in full. The final amount paid was $517,405 consisting of $500,000 in principal and $17,405 in accrued interest. Interest expense for the years ended December 31, 2020 and 2019, was $52,500 and $13,386, respectively. Amortization expense on the discount on debt for the years ended December 31, 2020 and 2019, was $103,602 and $100,722, respectively. The Company reported a loss on the debt extinguishment related to the unamortized discount on debt of $193,693.

2019 Vendor Payable Conversion Note

In December 2019, a marketing firm agreed to convert 90% of trade accounts payable the Company owed that firm to a term loan with a principal amount of $137,729 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 marketing firm 17,997 shares of common stock in conjunction with this term loan. A discount on debt of $46,683 was recorded and amortized over the life of the loan as a component of interest expense on the accompanying consolidated statements of operations. The discount was calculated by allocating the relative fair value of the underlying equity issuance, determined using the relative fair market value method to ascribe the value of the common stock at the time of the issuance, relative to the face value of the loan to arrive at the total debt discount. On September 30, 2020, the Company repaid the conversion loan in full. The final amount paid was $143,454 consisting of $137,729 in principal and $5,725 in accrued interest. Interest expense for the years ended December 31, 2020 and 2019, was $15,494 and $9,302, respectively. Amortization expense on the discount on debt for the years ended December 31, 2020 and 2019, was $24,008 and $2,668, respectively. The Company reported a loss on the debt extinguishment related to the unamortized discount on debt of $20,007.

2019 $1,000,000 Convertible Bridge Notes

In December of 2019, the Company received cash in exchange for convertible promissory notes from five institutional lenders totaling $1,000,000. The maturity date of the notes was the earlier of (1) the closing of the Merger, (2) May 31, 2020, and (3) ninety (90) days if the Company determined not to proceed with the Merger. The notes accrued interest at five percent (5%). Immediately prior to the consummation of the Merger, the outstanding principal was converted into 1,030,585 shares of common stock. Interest expense for the years ended December 31, 2020 and 2019, was $20,833 and $1,291, respectively.

2019 $800,000 Convertible Notes

During the first quarter of 2019, the Company received cash in exchange for convertible promissory notes from seven individual lenders, totaling $800,000. The terms for the notes were sixty (60) days with an additional sixty-day extension to be exercised at the discretion of the Company. The notes accrued interest at twelve (12%) for the first sixty days and at fifteen percent (15%) for the sixty-day extension. The lenders had the option to convert the notes and accrued interest into AYRO Seed Preferred Stock (see Note 10) at $1.75 per share before the sixty-day extension period has expired. In May 2019, four lenders converted $350,000 of principle and $9,062 of accrued interest into 205,178 of AYRO Seed Preferred Stock. In September 2019, one lender converted $100,000 of convertible notes to a twelve-month term loan (see 2019 $250,000 Bridge Notes). Additionally, two lenders redeemed $60,000 in principal from their outstanding note. Warrants to purchase up to 26,586 of common stock at a price of $7.33 per share were issued in connection with the notes. The warrants issued have a five-year life. A discount on debt related to the warrant issuance of $69,173 was recorded and was amortized over the life of the notes as a component of interest expense on the accompanying consolidated statements of operations. The discount was calculated by allocating the relative fair value of the underlying equity issuance, determined using the relative fair market value method to ascribe the value of the common stock at the time of the issuance, relative to the face value of the loan to arrive at the total debt discount. In December 2019, the remaining $290,000 in principal and associated accrued interest was converted to 343,482 shares of AYRO Seed Preferred Stock. Interest expense for the years ended December 31, 2020 and 2019, was $0 and $57,201, respectively. Amortization expense on the discount on debt for the years ended December 31, 2020 and 2019, was $0 and $69,173, respectively.

2019 $250,000 Bridge Notes

During the third quarter of 2019, the Company received cash in exchange for term loans from five individual lenders, totaling $250,000. Additionally, one lender holding convertible debt, converted $100,000 in principal amount to a term loan (see 2019 $800,000 Convertible Notes). In the fourth quarter of 2019, the Company received cash of $75,000 in exchange for a term loan from an individual lender. The terms for the notes were for twelve months, with twelve percent (12%) interest payable quarterly. The Company issued 0.2880 shares of common stock to the lenders for each dollar borrowed for an aggregate of 122,379 shares of common stock. A discount on debt related to the common stock issuance of $187,675 was recorded and amortized over the life of the notes as a component of interest expense on the accompanying consolidated statements of operations. The discount was calculated by allocating the relative fair value of the underlying equity grant, determined using the relative fair market value method to ascribe the value of the common stock at the time of the grant, relative to the face value of the loan to arrive at the total debt discount. In December 2019, $425,000 of principal and associated interest were converted to 433,819 shares of AYRO Seed Preferred Stock.

2020 $500,000 Bridge Notes

In February 2020, the Company received cash in exchange for promissory notes from three institutional lenders totaling $500,000. The maturity date of the notes was the earlier of (1) the closing of the Merger, (2) May 31, 2020, and (3) ninety (90) days the Company determines not to proceed with the Merger. The notes accrued interest at seven percent (7%). Immediately after the consummation of the Merger, the notes were redeemed for cash. Interest expense for the year ended December 31, 2020 was $9,373.

2020 $600,000 Bridge Notes

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. A discount on debt of $462,013 was recorded in the transaction and was being amortized over the life of the note as a component of interest expense on the accompanying consolidated statements of operations. The discount was calculated by allocating the relative fair value of the underlying equity issuance, determined using the relative fair market value method to ascribe the value of the common stock at the time of the issuance, relative to the face value of the loan to arrive at the total debt discount. Interest expense for the years ended December 31, 2020 was $10,233. Amortization expense for the discount on debt for the year ended December 31, 2020 was $108,788. The note was fully repaid upon closing of the Merger. The Company reported a loss on the debt extinguishment related to the unamortized discount on debt of $353,225.

2020 Paycheck Protection Program Term Note

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.