NOTE 8 – 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 3,000,000 shares of the Company’s common stock for issuance under the 2021 Plan. On July 26, 2022, the Company’s shareholders approved an increase of 4,000,000 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 June 30, 2022, were 260,105 shares. An amendment to the 2021 Plan that increased the available shares under the 2021 Plan by an additional 4,000,000 shares was approved by the Company’s shareholders on July 26, 2022. 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. The Company has granted awards with time-based vesting and performance-based vesting features.

Restricted Stock Units

The following is the restricted stock unit activity for the six months ended June 30, 2022:

In January 2022, the Company modified the vesting terms of 100,000 RSUs that had vested as of December 31, 2021 to extend the vesting through May 15, 2022. The Company granted an additional 25,000 RSUs to the holders of these RSUs that vesting was extended and these additional RSUs will also vest as of May 15, 2022. The Company recorded additional expenses of $213,987 and $912,263 during the three and six months ended June 30, 2022, respectively, related to these modifications. The remaining 25,000 shares that were vested as of December 31, 2021 were issued in January 2022. In January 2022, the Company granted 10,000 RSUs that vested over 3 months (vesting began in December 2021), to a consultant.

During the three and six months ended June 30, 2022, the Company recognized expenses of $249,222 and $1,196,810 (including the amounts noted above), respectively, and for the three and six months ended June 30, 2021, $100,088 and $200,175, respectively, for RSUs. The Company expects to recognize additional compensation expenses of $192,415 related to RSUs assuming all awards outstanding at June 30, 2022 will vest.

Performance Shares

In January 2021, the board of directors authorized 250,000 common shares to be reserved under the 2021 Plan for issuance to employees upon achieving multiple Company performance milestones. The allocation of the number of shares to be awarded was to be determined upon achievement of all the milestones. In July 2021, the Compensation Committee of the board of directors approved a grant of 162,507 shares since some of the performance milestones were met. The Company recognized share-based compensation expenses of $594,775 related to the grant of these shares.

The remaining 87,493 shares not awarded in July 2021 were available for issuance to employees as of December 31, 2021 based upon achieving multiple Company performance milestones for the second half of 2021. On March 1, 2022, the Compensation Committee of the board of directors approved a grant of 44,623 shares for the achievement of some of the Company’s 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 2,876 shares and such shares are available for future issuance under the 2021 Plan.

Stock Options

The following summarizes activity relating to common stock options to employees and consultants for services during the six months ended June 30, 2022:

The Company valued the options using an estimated fair value of the shares of common stock between $0.98 – $5.00, volatility between 71% - 105% based on peer companies, risk free interest rate between 0.77% - 0.85%, no dividends and an estimated life of 6 years. During the three and six months ended June 30, 2022, the Company recognized expenses of $375,391 and $995,667 respectively, and for the three and six months ended June 30, 2021 the Company recognized $78,663 and $83,278, respectively, related to common stock options. The Company expects to recognize additional compensation expenses of $3,871,523 related to these common stock options assuming all awards vest.

Total stock-based compensation recorded for the three and six months ended June 30, 2022 and 2021 for all stock based compensation awards, including warrants, has been recorded as follows:

The amounts for the three months ended June 30, 2021 were incorrectly disclosed when previously reported but properly recorded in the financial statements. The amounts for the six months ended June 30, 2021 were properly recorded and disclosed and there is no error to the financial statements for the three and six months ended June 30, 2021 other than this disclosure.