STOCK BASED COMPENSATION

12 Months Ended

Dec. 31, 2021

Share-based Payment Arrangement [Abstract]

STOCK BASED COMPENSATION

NOTE 12. 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 1,498,740 stock options, restricted stock and warrants remaining under this plan as of December 31, 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 December 31, 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 December 31, 2021. As of December 31, 2021, 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,
	2021		2020
Research and development	$	73,447	$	65,433
Sales and marketing		224,076		160,480
General and administrative		7,258,759		1,601,095
Total	$	7,556,282	$	1,827,008

AYRO, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Options

The following table reflects the stock option activity:

	Number of Shares			Weighted Average Exercise Price			Contractual Life (Years)
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
Exercised		(555,004	)	$	(2.72	)
Forfeitures		(26,590	)	$	(2.52	)
Outstanding at December 31, 2021		1,338,675		$	5.14			8.26

Of the outstanding options, 1,062,294 were vested and exercisable as of December 31, 2021. At December 31, 2021 the aggregate intrinsic value of stock options vested and exercisable was $0.

The Company recognized $1,232,402 and $908,533 of stock option expense for the years ended December 31, 2021 and 2020, respectively. Total compensation cost related to non-vested stock option awards not yet recognized as of December 31, 2021 was $637,576 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.

AYRO, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

	For the Years Ended December 31,
	2021		2020
Expected life (years)		n/a		5.0
Risk-free interest rate		n/a		0.38	%
Expected volatility		n/a		89.76	%
Total grant date fair value		n/a	$	1.83 to $2.81

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		-		$	-
Granted		1,087,618		$	5.27
Vested		(15,115	)	$	(3.17	)
Outstanding at December 31, 2020		1,072,503		$	5.30
Granted		622,000		$	3.91
Vested		(1,201,891	)	$	5.71
Forfeitures		(42,612	)	$	3.17
Outstanding at December 31, 2021		450,000		$	2.48

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. The Company recognized compensation expense during the year ended December 31, 2021 and 2020 of $699,527 and $548,679, respectively.

In December 2020, based on objectives achieved, the Company issued 651,250 shares of restricted stock to Rodney C. Keller, Jr. 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 434,166 unvested shares of Keller Restricted Stock vested pursuant to Mr. Keller’s separation agreement. Compensation expense recognized for the Keller Restricted Stock for the years ended December 31, 2021 and 2020 was $4,126,618 and $233,732, respectively.

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. All awards vested during the year ended December 31, 2021. The Company recognized compensation expense during the year ended December 31, 2021 of $1,317,520, of which $329,380 was held in accrual for shares unissued at December 31, 2021. As of December 31, 2021, 43,000 shares remained unissued.

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 $180,215 of expense in the year ended December 31, 2021. Total compensation cost related to non-vested restricted stock not yet recognized as of December 31, 2021 was $936,877 and will be recognized on a straight-line basis per target through the end of each vesting period through December 2023.

AYRO, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Other Share-Based Payments

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 $0 and $103,764 of warrant expense related to consulting services for the years ended December 31, 2021 and 2020, respectively.