FINANCING ARRANGEMENTS

12 Months Ended

Dec. 31, 2021

Debt Disclosure [Abstract]

FINANCING ARRANGEMENTS

NOTE 10. FINANCING ARRANGEMENTS

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, 2021 and 2020 was $1,971 and $2,119, 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, 2021 and 2020, was $0 and $52,500, respectively. Amortization expense on the discount on debt for the years ended December 31, 2021 and 2020, was $0 and $103,602, respectively. The Company reported a loss on the debt extinguishment related to the unamortized discount on debt of $193,693 during the year ended December 31, 2020.

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, 2021 and 2020 was $0 and $15,494, respectively. Amortization expense on the discount on debt for the years ended December 31, 2021 and 2020 was $0 and $24,008, respectively. The Company reported a loss on the debt extinguishment related to the unamortized discount on debt of $20,007 during the year ended December 31, 2020.

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, 2021 and 2020, was $0 and $20,833, respectively.

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 years ended December 31, 2021 and 2020 was $0 and $9,373, respectively.

AYRO, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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, 2021 and 2020 was $0 and $10,233, respectively. Amortization expense for the discount on debt for the years ended December 31, 2021 and 2020 was $0 and $108,788, respectively. 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 during the year ended December 31, 2020.

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.