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Financing Arrangements | 9 Months Ended
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Sep. 30, 2020
Debt Disclosure [Abstract] |
Financing Arrangements | NOTE 9. FINANCING ARRANGEMENTS The composition of the Company’s debt and financing obligations was as follows:
|  | September 30, |  |  | 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 |
2020 Paycheck Protection Program Term Note |  |  | 218,000 |  |  |  | - |
Note payable – auto financing |  |  | 23,399 |  |  |  | 28,555 |
|  |  | 241,399 |  |  |  | 1,666,284 |
Less: debt discount |  |  | - |  |  |  | (341,310 | )
|  |  | 241,399 |  |  |  | 1,324,974 |
Less: current portion |  |  | (7,393 | ) |  |  | (1,006,947 | )
Long-term debt |  | $ | 234,006 |  |  | $ | 318,027 |
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”). Under the Program, all or a portion of the PPP Note may be forgiven in accordance with the Program requirements. The PPP Note carries a maturity date of May 20, 2022, at a 1% interest rate. Interest expense for the three and nine months ended September 30, 2020 was $818. No payments are required for nine months from the date of issuance. The amount of the forgiveness shall be calculated (and may be reduced) in accordance with the requirements of the Program, including the provisions of the CARES Act. No more than 25% of the amount forgiven can be attributable to non-payroll costs, as defined in the Program. 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 $343,746 was recorded and is being amortized over the life of the loan as a component of interest expense on the accompanying unaudited condensed 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 total amount paid was $517,405 consisting of $500,000 in principal and $17,405 in accrued interest. Interest expense for the three and nine months ended September 30, 2020 was $17,500 and $52,500, respectively, and $0 for the three and nine months ended September 30, 2019. Amortization expense on the discount on debt for the three and nine months ended September 30, 2020 was $58,655 and $103,603, respectively, and $0 for the three and nine months ended September 30, 2019. 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 is being amortized over the life of the loan as a component of interest expense on the accompanying unaudited condensed 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 total amount paid was $143,454 consisting of $137,729 in principal and $5,725 in accrued interest. Interest expense for the three and nine months ended September 30, 2020 was $5,136 and $15,466, respectively, and $0 for the three and nine months ended September 30, 2019. Amortization expense on the discount on debt for the three and nine months ended September 30, 2020 was $8,003 and $24,009, respectively, and $0 for the three and nine months ended September 30, 2019. 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 three and nine months ended September 30, 2020 was $0 and $20,833, respectively, and $0 for the three and nine months ended September 30, 2019. 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 9) 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 $69,174 was recorded and was amortized over the life of the notes as a component of interest expense on the accompanying unaudited condensed 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 three and nine months ended September 30, 2020 was $0 and for three and nine months ended September 30, 2019 was $10,452 and $46,026, respectively. Amortization discount for the three and nine months ended September 30, 2020 was $0 and for three and nine months ended September 30, 2019 was $32,766 and $60,650, 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 is being amortized over the life of the notes as a component of interest expense on the accompanying unaudited condensed 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 433,820 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 three and nine months ended September 30, 2020, was $0 and $9,373, respectively, and $0 for the three and nine months ended September 30, 2019. 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 founding board member. In conjunction with the notes, 553,330 (276,665 shares of common stock representing two percent (2%) of the combined company’s post-merger outstanding common stock each) was 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 unaudited condensed 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. Amortization expense for the discount on debt for the three and nine months ended September 30, 2020 was $0 and $108,788 for both periods and $0 for the three and nine months ended September 30, 2019. The note was fully repaid upon closing of the Merger. Interest expense for the three and nine months ended September 30, 2020 was $0 and $10,233 for both periods and $0 for the three and nine months ended September 30, 2019. The Company reported a loss on the debt extinguishment related to the unamortized discount on debt of $353,225.

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- Definition The entire disclosure for information about short-term and long-term debt arrangements, which includes amounts of borrowings under each line of credit, note payable, commercial paper issue, bonds indenture, debenture issue, own-share lending arrangements and any other contractual agreement to repay funds, and about the underlying arrangements, rationale for a classification as long-term, including repayment terms, interest rates, collateral provided, restrictions on use of assets and activities, whether or not in compliance with debt covenants, and other matters important to users of the financial statements, such as the effects of refinancing and noncompliance with debt covenants. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 470 -URI http://asc.fasb.org/topic&trid=2208564 + Details
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