NOTE 10 – STOCK-BASED COMPENSATION

In January 2021, the Company’s board of directors adopted the Volcon, Inc. 2021 Stock Plan, (the “2021 Plan”). The 2021 Plan is a stock-based compensation plan that provides for discretionary grants of stock options, stock awards, and restricted stock unit awards to employees, members of the board of directors and consultants (including restricted stock units issued prior to the adoption of the plan as further discussed below). The Company initially reserved a total of 600,000 shares of the Company’s common stock for issuance under the 2021 Plan. On July 26, 2022, the Company’s stockholders approved an increase of 800,000 shares of the Company’s common stock for issuance under the 2021 plan, which may be adjusted for changes in capitalization and certain corporate transactions. To the extent that an award, if forfeitable, expires, terminates or lapses, or an award is otherwise settled in cash without the delivery of shares of common stock to the participant, then any unpaid shares subject to the award will be available for future grant or issuance under the 2021 Plan. Shares available for issuance under the 2021 Plan as of September 30, 2023, were 251,351 shares. Awards vest according to each agreement and as long as the employee remains employed with the Company or the consultant continues to provide services in accordance with the terms of the agreement.

Restricted Stock Units

The following is the restricted stock unit activity for the nine months ended September 30, 2023

In January 2022, the Company modified the vesting terms of 20,000 RSUs that had vested as of December 31, 2021 to extend the vesting through May 15, 2022. The Company granted an additional 5,000 RSUs to the holders of these RSUs that vesting was extended and these additional RSUs vested as of May 15, 2022. The Company recorded an additional expense of $1,267,250 during 2022 related to these modifications.

For the three and nine months ended September 30, 2023, the Company recognized expense for RSUs of $(15,700) and $61,623, respectively. For the three and nine months ended September 30, 2022, the Company recognized expense for RSUs of $35,325 and $1,232,135, respectively. The Company expects to recognize additional compensation expenses of $3,925 related to RSUs assuming all awards outstanding at September 30, 2023 will vest.

Performance Shares

On March 1, 2022, the Compensation Committee of the board of directors approved a grant of 8,925 shares for the achievement of some of the Company’s 2021 performance milestones, and the Company recognized share-based compensation expenses of $82,050 related to the grant of these shares in the quarter ended March 31, 2022. Certain individuals whose employment terminated subsequent to December 31, 2021 forfeited their share grants totaling 576 shares and such shares are available for future issuance under the 2021 Plan.

In 2022 the compensation committee approved reserving 50,000 shares from the 2021 Plan to issue based on achievement of the Company’s 2022 performance milestones to employees who are employed in 2022 and are active employees on the date of approval in 2023 by the compensation committee. On February 6, 2023 the compensation committee of the board of directors approved a grant of 30,997 shares (27,772 were issued due a forfeiture of 132 shares and 3,093 shares withheld for payment of employee withholding taxes) for the achievement of some of the Company’s 2022 performance milestones. The Company recognized share-based compensation expenses of $257,717 related to the grant of these shares in the quarter ended March 31, 2023. The compensation committee also approved reserving the remaining 19,003 not issued for 2022 performance milestones for issuance to active employees on the date the first Stag is shipped to a customer.

In addition, the compensation committee also approved reserving 50,000 shares from the 2021 Plan to issue to employees based on achievement of the Company’s 2023 performance milestones to employees who are employed in 2023 and are active employees on the date of approval in 2024 by the compensation committee.

Stock Options

The following summarizes activity relating to common stock options to employees and consultants for services during the nine months ended September 30, 2023:

The Company valued the options using the closing stock price of the Company’s common stock on the date of grant, an estimated volatility between 78.7% - 81.5% based on peer companies, risk free interest rate between 3.54% - 3.95%, no dividends and an estimated life of 6 years. During the three and nine months ended September 30, 2023, the Company recognized share-based compensation expenses of $556,228, and $1,904,016, respectively, related to common stock options. During the three and nine months ended September 30, 2022 the Company recognized share-based compensation expenses of $389,745, and $1,385,402, respectively, related to common stock options. The Company expects to recognize additional compensation expense of $2,136,860 related to these common stock options assuming all awards will vest.

Total stock-based compensation recorded for the three and nine months ended September 30, 2023 and 2022 for all stock based compensation awards, including warrants, has been recorded as follows: