Related Party Transactions

12 Months Ended

Dec. 31, 2020

Related Party Transactions [Abstract]

Related Party Transactions

NOTE 13. RELATED PARTY TRANSACTIONS

Supply Chain Agreements

In 2017, the Company executed a supply chain contract with Cenntro Automotive Group (“Cenntro”), the Company’s primary supplier, a manufacturer located in the People’s Republic of China. Prior to the Merger, Cenntro was a significant shareholder in AYRO Operating. Through the partnership, Cenntro acquired 19% of AYRO Operating’s common stock. Cenntro beneficially owned approximately 4.38% of the Company’s common stock as of December 31, 2020. Cenntro owns the design of the AYRO 411 Fleet vehicles and has granted the Company an exclusive license to purchase the AYRO 411 Fleet vehicles for sale in North America. Currently, the Company purchases 100% of its vehicle chassis, cabs and wheels through this supply chain relationship with Cenntro. The Company must sell a minimum number of units in order to maintain its exclusive supply chain contract. The Company was in default of the original exclusive term of the contract; however, in 2019, the contract was amended to remove the default clause. In December 2019, Cenntro, agreed to convert $1,100,000 of trade accounts payable due from the Company to 299,948 shares of the Company’s Seed Preferred Stock. The parties also agreed that there would be a forgiveness of any accrued interest on the trades payable as a result of this conversion, which resulted in a recapture of interest expense for the Company in the amount of $168,169 in the year ended December 31, 2019. As of December 31, 2020 and 2019, the amounts outstanding to Cenntro as a component of accounts payable were $44,592 and $83,955, respectively. Under a memo of understanding signed between the Company and Cenntro on March 22, 2020, the Company agreed to purchase 300 units within the following twelve months of signing the memo of understanding, and 500 and 800 in each of the following respective twelve-month periods. On July 9, 2020, in exchange for certain percentage discounts for raw materials, the Company made a $1.2 million prepayment for inventory. As of December 31, 2020 and 2019, the prepayment deposits were $976,512 and $49,162.

Other

The Company had received short-term expense advances from its founders. For the years ended December 31, 2020 and 2019, the amounts outstanding were $15,000 for each year and recorded as a component of accounts payable on the accompanying consolidated balance sheets.

In October 2019, the Company received $500,000 and issued a term loan from a founding board member. Furthermore, the Company granted 143,975 shares of the Company’s common stock as of December 2019. During the year ended December 31, 2020, the Company granted an additional 136,340 shares of the Company’s common stock to as consideration for extending the term date of the loan to April 30, 2021. This note and accrued interest were paid in full in September 2020, see 2019 $500,000 Founder Bridge Note – Note 9.

On March 1, 2017, the Company entered into a royalty-based agreement with Sustainability Initiatives, LLC (“SI”) an entity that is controlled by certain Company board members in the effort to accelerate the Company’s operations. Royalties accrued were included as a component of research and development expense in the accompanying consolidated statements of operations. In return for acceleration assistance and for serving the Chief Visionary Officer role, the agreement provided for a monthly retainer of $6,000 per month. On a quarterly basis, the Company remitted a royalty percentage (see table below) of company revenues less the retainer amounts.

Revenues	Royalty Percentage
$0 - $25,000,000		3	%
$25,000,000 - $50,000,000		2	%
$50,000,000 - $100,000,000		1	%
Over $100,000,001		0.5	%

Effective January 1, 2019, the Company agreed to an amendment with SI to reduce the royalty percentage to 0.5%. In relation to this amendment, the Company granted the SI members an additional 381,752 stock options to vest over a nine-month vesting term. On October 15, 2019, the Company and the SI members agreed to terminate the agreement in full in exchange for 231,778 shares of the Company’s common stock. Stock-based compensation of $908,650 was recorded on the transaction in October 2019.

On December 9, 2019, the Company and the SI members agreed to cancel the outstanding options to purchase 477,190 shares of the Company’s common stock in exchange for 434,529 shares of the Company’s common stock. Stock-based compensation of $1,496,343 was recorded for the transaction in December 2019.

On April 1, 2017, the Company entered into a fee-for-service agreement with SI. In return for accounting, marketing, graphics and other services, the Company pays fixed, market-standard hourly rates under the shared services agreement as services are rendered. For the years ended December 31, 2020 and 2019, the Company had a balance outstanding to SI for $12,150 for both periods included in accounts payable. Total expenses were $0 and $61,275 for the years ended December 31, 2020 and 2019, respectively.

In January 2019, the Company entered into a fee-for-service consulting agreement with Sustainability Consultants, LLC, an entity that is controlled by principal stockholders of the Company. In exchange for consulting services provided, the Company paid $189,238 in consulting fees to the firm during the first half of 2019. Additionally, the Company granted warrants to purchase 177,924 shares of the Company’s common stock. The warrants have an exercise price of $7.33 per share with a five-year life. Stock-based compensation consulting expense of $260,733 was recorded in the general and administrative expenses on the statement of operations in the fourth quarter of 2019 in conjunction with the warrant grant. The Company also granted 67,488 shares of the Company’s common stock and recorded stock-based compensation of $232,403 in the general and administrative expenses on the statement of operations for the fourth quarter of 2019 related to the common stock transaction.