Quarterly report pursuant to Section 13 or 15(d)

STOCK-BASED COMPENSATION

v3.21.2
STOCK-BASED COMPENSATION
9 Months Ended
Sep. 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 1,474,649 stock options, restricted stock and warrants remaining under this plan as of September 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 September 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 September 30, 2021. As of September 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
September 30,
    Nine Months Ended
September 30,
 
    2021     2020     2021     2020  
Research and development   $ 18,786     $ 15,873     $ 62,980     $ 47,618  
Sales and marketing     60,771       28,991       184,853       101,695  
General and administrative     3,580,935       122,905       6,750,153       325,862  
Total   $ 3,660,492     $ 167,769     $ 6,997,986     $ 475,175  

 

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     (555,004 )   $ 2.72          
Forfeitures     (2,500 )   $ 2.52          
Outstanding at September 30, 2021     1,362,765     $ 5.09       8.31  

 

Of the outstanding options, 904,531 were vested and exercisable as of September 30, 2021. At September 30, 2021 the aggregate intrinsic value of stock options vested and exercisable was $328,954.

 

The Company recognized $669,999 and $156,611 of stock option expense for the three months ended September 30, 2021 and September 30, 2020, and $1,170,958 and $427,258 for the nine months ended September 30, 2021 and September 30, 2020, respectively. Total compensation cost related to non-vested stock option awards not yet recognized as of September 30, 2021 was $802,753 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.

 

    Nine Months Ended September 30,  
    2021     2020  
Expected life (years)     N/A       5.0  
Risk-free interest rate     N/A       0.24 %
Expected volatility     N/A       89.96 %
Total grant date fair value   $ N/A     $ 2.30-3.63  

 

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 nine months ended September 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     622,000     $ 3.91  
Vested     (1,158,891 )   $ 5.64  
Forfeitures     (42,612 )   $ 3.17  
Outstanding at September 30, 2021     493,000     $ 2.93  

 

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 nine months ended September 30, 2021 of $0 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 vested on May 28, 2021, one-third was to vest on December 4, 2021 and one-third was to vest on December 4, 2022. In September 2021 all unvested shares of Keller Restricted Stock vested pursuant to Mr. Keller’s separation agreement. Compensation expense recognized for the Keller Restricted Stock for the three and nine months ended September 30, 2021 was $2,648,371 and $4,126,618, respectively. 434,166 of these shares immediately vested but remained unissued as of September 30, 2021.

 

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 nine months ended September 30, 2021 of $329,380 and $988,140. Total compensation cost related to non-vested restricted stock not yet recognized as of September 30, 2021 was $329,380 and will be recognized on a straight-line basis through the end of the vesting periods through December 31, 2021.

 

In September 2021, pursuant to the employment agreement with Thomas M. Wittenschlaeger, the Company issued 450,000 shares of restricted stock at a value of $2.48 per share. Vesting will occur as predetermined value-based targets are met. We estimate the fair value of stock-based and cash unit awards containing a market condition using a Monte Carlo simulation model. Key inputs and assumptions used in the Monte Carlo simulation model include the stock price of the award on the grant date, the expected term, the risk-free interest rate over the expected term, the expected annual dividend yield and the expected stock price volatility. The Company does not currently pay or plan to pay a dividend on its common stock, the expected dividend yield was zero. Volatility was determined using a three-year lookback with a 110% determination. The expected term is December 27, 2023 for the fifth and final tranche. The Company recognized $12,742 of expense in the three and nine months ended September 30, 2021. Total compensation cost related to non-vested restricted stock not yet recognized as of September 30, 2021 was $1,104,350 and will be recognized on a straight-line basis per target through the end of each vesting period through December 2023.

 

 

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 of warrant expense related to consulting services for the three months ended September 30, 2021 and 2020, and $0 and $36,760 for the nine months ended September 30, 2021 and 2020, respectively.