Annual report pursuant to Section 13 and 15(d)

Stock Based Compensation

v3.21.1
Stock Based Compensation
12 Months Ended
Dec. 31, 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 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 2,051,537 stock options, restricted stock and warrants remaining under this plan as of December 31, 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. As of December 31, 2020, 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 December 31, 2020. As of December 31, 2020, there were zero shares available for grant under the 2014 Plan.

 

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

 

    Years Ended December 31,  
    2020     2019  
Research and development   $ 65,433     $ (40,828 )
Sales and marketing     160,480       46,723  
General and administrative     1,601,095       3,366,831  
Total   $ 1,827,008     $ 3,372,726  

 

Options

 

The following table reflects the stock option activity:

 

    Number of Shares     Weighted Average Exercise Price     Contractual Life (Years)  
                   
Outstanding at December 31, 2018     899,844     $ 2.45       5.80  
Granted     890,300       3.54          
Exercised     -       -       -  
Cancellations     (477,190 )     3.08          
Forfeitures     (316,309 )     3.08          
Outstanding at December 31, 2019     996,645     $ 2.92       5.73  
Assumed as part of the Merger     61,440       46.95          
Granted     896,269       3.06          
Exercised     (6,817 )     (2.45 )        
Forfeitures     (27,268 )     (2.86 )        
                         
Outstanding at December 31, 2020     1,920,269     $ 4.40       8.66  

 

Of the outstanding options, 975,388 were vested and exercisable as of December 31, 2020. At December 31, 2020 the aggregate intrinsic value of stock options vested and exercisable was $2,997,456.

 

The Company recognized $908,533 and $286,722 of stock option expense for the years ended December 31, 2020 and 2019, respectively. Total compensation cost related to non-vested stock option awards not yet recognized as of December 31, 2020 was $1,973,286 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.

 

    As of December 31,  
    2020     2019  
Expected life (years)     5.0       5.0  
Risk-free interest rate     0.38 %     1.62 %
Expected volatility     89.76 %     73.20 %
Total grant date fair value   $ 1.83 to $2.81     $ 3.45  

 

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 comparable data and in periods prior to the Merger 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, 2019     -     $ 0  
Granted     1,087,618       5.27  
Vested     (15,115 )     (3.17 )
                 
Outstanding at December 31, 2020     1,072,503     $ 5.30  

 

In September 2020, the Company issued 436,368 shares of restricted stock to current 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. In December of 2020, The Company recognized compensation expense during the year ended December 31, 2020 of $548,679. Total compensation cost related to non-vested restricted stock not yet recognized as of December 31, 2020 was $834,608 and will be recognized on a straight-line basis through the end of the vesting periods through May of 2021.

 

In December 2020, based on objectives achieved, the Company issued 651,250 shares of 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 for the Keller Restricted Stock of $223,732 was recognized for the year ended December 31, 2020. Total compensation cost related to non-vested restricted stock not yet recognized as of December 31, 2020 was $4,126,618 and will be recognized on a straight-line basis through the end of the vesting periods through December 22, 2022.

 

Other Share-Based Payments

 

Warrants: The Company grants 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 $103,764 and $448,608 of warrant expense related to consulting services for the years ended December 31, 2020 and 2019, respectively.

 

Stock Grants

 

The Company recognized $42,300 and $2,637,396 of stock grant expense related to services for the years ended December 31, 2020 and 2019, respectively.

 

In December 2020, based on its contract, the Company issued 15,000 shares of restricted stock to Core IR, the Company’s investor relations firm. The shares were immediately vested and are unissued as of December 31, 2020. An expense of $42,300 was recorded for the year ended December 31, 2020 in the general & administrative operating expenses in the Statements of Operations.

 

In October 2019, the Company granted 231,778 shares of the Company’s common stock to Sustainability Initiatives, LLC, an entity controlled by two of the Company’s founding board members as compensation for the termination of the consulting agreement with that entity. Stock-based compensation of $908,650 was recorded in the transaction.

 

In October 2019, the Company granted 143,975 shares of the Company’s common stock to Mark Adams, a founding board member, as consideration in providing a $500,000 150-day term loan to the Company. In December 2019, the Company granted an additional 136,340 shares of the Company’s common stock to Mr. Adams as consideration for extending the term date of the loan to April 30, 2021. A discount on debt of $398,017 was recorded in the transaction.

 

In December 2019, the Company granted 434,529 shares of the Company’s common stock to Sustainability Initiatives, LLC and two of the Company’s founding board members as compensation for cancelling options to purchase 447,190 shares of the Company’s common stock. Stock-based compensation of $1,496,343 was recorded in the transaction.

 

In December 2019, The Company granted 67,488 shares of common stock as compensation for consulting services to Sustainability Consultants, LLC, an entity that is controlled by Mark Adams, Will Steakley and John Constantine, who are principal stockholders of the Company. Stock-based compensation of $232,403 was recorded in the transaction.

 

The Company measures stock grants at grant-date fair value and recognizes contractor consulting expense on a straight-line method basis over the vesting period of the award. Grants to non-employees 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 fair value of the stock grants was determined based on the fair market value of the Company’s common stock as determined by an independent third-party valuation firm.