Quarterly report pursuant to Section 13 or 15(d)

Stock Based Compensation

v3.20.2
Stock Based Compensation
9 Months Ended
Sep. 30, 2020
Share-based Payment Arrangement [Abstract]  
Stock Based Compensation

NOTE 11. STOCK BASED COMPENSATION

 

AYRO 2020 Long Term Incentive Plan

 

On May 28, 2020, the Company’s shareholders approved the AYRO, Inc. 2020 Long Term Incentive Plan for future grants of stock options and warrants. During the six months ended June 30, 2020, 38,211 shares of restricted stock units were awarded to the directors of DropCar prior to the Merger and 25,000 shares of restricted stock have been granted to the former DropCar principals as final consideration pursuant to the AYRO 2020 Long Term Incentive Plan. The value of the services underlying the RSU grants were recorded prior to the Merger. Additionally, in September 2020, the Company issued 436,368 shares of restricted stock to current directors and options to purchase 741,686 shares of common stock to the executive officers. The Company recognized compensation expense during the quarter ended September 30, 2020 of $47,917 and will record approximately an additional $1,335,000 of compensation expense upon vesting of the restricted stock grants as of December 31, 2020. The options to executive officers are recorded as compensation expense over their three-year vesting schedules based on the Black-Scholes valuation calculation. The Company has reserved a total of 2,289,650 shares of its common stock pursuant to the AYRO, Inc. 2020 Long-Term Incentive Plan, including shares of restricted stock that have been issued. The Company has 1,048,385 stock options remaining under this plan as of September 30, 2020.

 

AYRO 2017 Long Term Incentive Plan

 

Prior to the Merger, the Company granted stock options and warrants pursuant to the 2017 Long Term Incentive Plan effective January 1, 2017.

 

DropCar Amended and Restated 2014 Equity Incentive Plan

 

The DropCar Amended and Restated 2014 Equity Incentive Plan was amended in 2018 to increase the number of shares of Company common stock available for issuance, the 2014 Equity Incentive Plan (the “2014 Plan”), with 141,326 shares of common stock reserved for issuance. and there are options to purchase 76,069 shares outstanding as of September 30, 2020. As of September 30, 2020, there were zero shares available for grant under the 2014 Plan.

 

Determining the appropriate fair value of the stock-based awards requires the input of subjective assumptions, including the fair value of the Company’s common stock, and for stock options, the expected life of the option, and the expected stock price volatility. The Company uses the Black-Scholes option pricing model to value its stock option awards. The assumptions used in calculating the fair value of stock-based awards represent management’s best estimates and involve inherent uncertainties and the application of management’s judgment. As a result, if factors change and management uses different assumptions, stock-based compensation expense could be materially different for future awards.

 

The Company uses the following inputs when valuing stock-based awards.

 

    Period Ending September 30,  
    2020     2019  
Expected life (years)     5.0       5.0  
Risk-free interest rate     0.24 %     1.56 %
Expected volatility     89.96 %     68.4 %
Total grant date fair value     $2.30 to $3.63       $1.47 to $3.92  

 

The expected life of the employee stock options was estimated using the “simplified method,” as the Company has no historical information to develop reasonable expectations about future exercise patterns and employment duration for its stock option grants. The simplified method is based on the average of the vesting tranches and the contractual life of each grant. The expected life of awards that vest immediately use the contractual maturity since they are vested when issued. For stock price volatility, the Company uses public company compatibles and historical private placement data as a basis for its expected volatility to calculate the fair value of option grants. The risk-free interest rate is based on U.S. Treasury notes with a term approximating the expected life of the option at the grant-date.

 

Stock-based compensation, including stock options and warrants is included in the unaudited condensed consolidated statement of operations as follows:

 

    Three Months Ended     Nine Months Ended  
    September 30,     September 30,  
    2020     2019     2020     2019  
Research and development   $ 15,873     $ 50,552     $ 47,618     $ 126,858  
Sales and marketing   $ 28,991     $ 935     $ 101,695     $ 10,938  
General and administrative   $ 122,905     $ 701,008     $ 325,862     $ 1,222,827  
Total   $ 167,769     $ 752,495     $ 475,175     $ 1,360,623  

 

Total compensation cost related to non-vested stock option awards not yet recognized as of September 30, 2020 was $637,081 and will be recognized on a straight-line basis through the end of the vesting periods September 2022. The amount of future stock option compensation expense could be affected by any future option grants or by any forfeitures.

 

The following table reflects the stock option activity for the nine months ended September 30, 2020:

 

    Number of Shares     Weighted Average Exercise Price     Contractual Life (Years)  
                   
Outstanding at December 31, 2019     996,645     $ 3.249       5.73  
Assumed as part of the Merger     61,440       46.950          
Granted     750,671       3.176          
Forfeitures     (27,268 )     2.861          
                         
Outstanding at September 30, 2020     1,781,488     $ 4.546       5.70  

 

Of the outstanding options, 770,530 were vested and exercisable as of September 30, 2020.

 

Restricted Stock

 

Pursuant to the Rodney Keller employment agreement, Mr. Keller is entitled to a grant of restricted stock shares based on achievement of certain milestones. On September 29, 2020, Mr. Keller was awarded the Keller Award, consisting of options to purchase 651,250 shares of restricted stock. No milestones have been achieved to date. Management has determined that neither the original award nor the modification qualifies as “probable” under the terms of ASC 718-10-25-20. Therefore, no compensation expense is required to be accrued.