Quarterly report pursuant to Section 13 or 15(d)

STOCK-BASED COMPENSATION

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STOCK-BASED COMPENSATION
6 Months Ended
Jun. 30, 2021
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 incentive stock options, nonqualified stock, stock appreciation rights, restricted stock, restricted stock units, performance and other awards. The Company has reserved a total of 4,089,650 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 1,874,037 stock options, restricted stock and warrants remaining under this plan as of June 30, 2021.

 

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. As of June 30, 2021, the 2017 Long Term Incentive Plan remains active, but no additional awards may be granted.

 

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. Pursuant to the 2014 Equity Incentive Plan (the “2014 Plan”), 141,326 shares of common stock were reserved for issuance and there are options to purchase 61,440 shares outstanding as of June 30, 2021. As of June 30, 2021, there were zero shares available for grant under the 2014 Plan.

 

 

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

 

    Three Months Ended June 30,     Six Months Ended June 30,  
    2021     2020     2021     2020  
Research and development   $ 20,708     $ 15,873     $ 44,194     $ 31,745  
Sales and marketing     60,633       38,120       124,082       72,705  
General and administrative     1,556,730       96,956       3,169,218       202,958  
Total   $ 1,638,071     $ 150,949     $ 3,337,494     $ 307,408  

 

Options

 

The following table reflects the stock option activity:

 

    Number of Shares     Weighted Average Exercise Price     Contractual Life (Years)  
Outstanding at December 31, 2020     1,920,269     $ 4.40       8.66  
Exercised     (469,576 )     (2.25 )        
Forfeitures     (2,500 )     (2.52 )        
Outstanding at June 30, 2021     1,448,193     $ 4.98       8.46  

 

Of the outstanding options, 575,600 were vested and exercisable as of June 30, 2021. At June 30, 2021 the aggregate intrinsic value of stock options vested and exercisable was $1,534,567.

 

The Company recognized $231,059 and $136,244 of stock option expense for the three months ended June 30, 2021 and June 30, 2020, and $500,953 and $270,647 for the six months ended June 30, 2021 and June 30, 2020, respectively. Total compensation cost related to non-vested stock option awards not yet recognized as of June 30, 2021 was $1,472,752 and will be recognized on a straight-line basis through the end of the vesting periods through October 2023. The amount of future stock option compensation expense could be affected by any future option grants or by any forfeitures.

 

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.

 

    Six Months Ended June 30,  
    2021     2020  
Expected life (years)     N/A       5.0  
Risk-free interest rate     N/A       0.70 %
Expected volatility     N/A       4.40 %
Total grant date fair value   $ N/A     $ 3.84  

 

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. No employee stock options were awarded in the six months ended June 30, 2021.

 

 

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.

 

Restricted Stock

 

The following table reflects the restricted stock activity:

 

 

Number of

Shares

   

Weighted

Average

Grant Price

 
Outstanding at December 31, 2020     1,072,503     $ 5.30  
Granted     172,000       7.66  
Vested     (681,724 )     4.85  
Forfeitures     (42,612 )     3.17  
Outstanding at June 30, 2021     520,167     $ 6.84  

 

In September 2020, the Company issued 436,368 shares of restricted stock to non-executive directors, of which 15,115 immediately vested and the remainder to vest in December 2020, which was subsequently modified to vest in full in May 2021. During May 2021, of the remaining outstanding restricted stock 378,641 vested and 42,612 were forfeited. The Company recognized compensation expense during the three and six months ended June 30, 2021 of $198,763 and $699,528, respectively.

 

In December 2020, based on objectives achieved, the Company issued 651,250 shares of restricted stock to Rodney C. Keller, Jr. (“the “Keller Restricted Stock”) that vest according to the following vesting schedule: one-third will vest on May 28, 2021, one-third will vest on December 4, 2021 and one-third will vest on December 4, 2022. Compensation expense recognized for the Keller Restricted Stock for the three and six months ended June 30, 2021 was $732,472 and $1,478,247, respectively. Total compensation cost related to non-vested restricted stock not yet recognized as of June 30, 2021 was $2,648,371 and will be recognized on a straight-line basis through the end of the vesting periods through December 4, 2022.

 

On February 24, 2021, pursuant to the AYRO, Inc. 2020 Long-Term Incentive Plan, the Company issued 172,000 shares of restricted stock to non-executive directors at a value of $7.66 per share. The shares vest 50% at June 30, 2021, 25% at September 30, 2021 and 25% at December 31, 2021. The Company recognized compensation expense during the three and six months ended June 30, 2021 of $475,771 and $658,760. Total compensation cost related to non-vested restricted stock not yet recognized as of June 30, 2021 was $658,760 and will be recognized on a straight-line basis through the end of the vesting periods through December 31, 2021.

 

Other Share-Based Payments

 

The Company granted stock warrants pursuant to the 2017 Long Term Incentive Plan (“LTIP”) effective January 1, 2017. The Company measured consultant stock-based awards at grant-date fair value and recognizes contractor consulting expense for contractor warrants on a straight-line method basis over the vesting period of the award. Grants to consultants are expensed at the earlier of (i) the date at which a commitment for performance by the service provider to earn the equity instrument is reached and (ii) the date at which the service provider’s performance is complete.

 

The Company recognized $0 and $14,704 of warrant expense related to consulting services for the three months ended June 30, 2021 and 2020, and $0 and $36,760 for the six months ended June 30, 2021 and 2020, respectively.