Serve Robotics Inc. /DE/SERV
Serve Robotics Inc. /DE/ Stock Compensation Disclosure
. STOCK-BASED COMPENSATION
2023 Equity Incentive Plan
The 2023 Equity Incentive Plan (the “2023 Plan”) permits the grant of incentive stock options, nonstatutory stock options, stock appreciation rights (“SARs”), restricted stock, restricted stock units (“RSUs”) and stock bonus awards (all such types of awards, collectively, “stock awards”).
Subject to adjustments as set forth in the 2023 Plan, the maximum aggregate number of shares of common stock that may be issued under the 2023 Plan will not exceed 7,487,029 shares.
The shares may be authorized, but unissued, or reacquired common stock. Furthermore, subject to adjustments as set forth in the 2023 Plan, in no event shall the maximum aggregate number of shares that may be issued under the 2023 Plan pursuant to Incentive Stock Options exceed the number set forth above plus, to the extent allowable under Section 422 of the Code and the regulations promulgated thereunder, any shares that again become available for issuance pursuant to the 2023 Plan.
The number of shares available for issuance under the 2023 Plan may, at the discretion of the Plan Administrator (as defined below), be increased on October 1st of each fiscal year beginning with the 2023 fiscal year until the 2023 Plan terminates, in each case, in an amount equal to the lesser of (i) at the discretion of our Board, 4% of the shares of common stock issued and outstanding on the last day of the immediately preceding month on a fully-diluted and as-converted basis and (ii) such other number of shares determined by our Board.
To the extent, stock awards or awards or shares issued under the 2021 Plan that are assumed by the Company pursuant to the Merger Agreement (“Existing Plan Awards”) expire or are forfeited or becomes unexerciseable for any reason without
having been exercised in full, or are surrendered pursuant to an exchange program (as defined in the 2023 Plan), the unissued shares that were subject thereto shall continue to be available under the 2023 Plan for issuance pursuant to future stock awards. In addition, any shares which are retained by us upon exercise of a stock award or Existing Plan Award in order to satisfy the exercise or purchase price for such stock award or Existing Plan Award or any withholding taxes due with respect to such stock award or Existing Plan Award shall be treated as not issued and shall continue to be available under the 2023 Plan for issuance pursuant to future stock awards. Shares issued under the 2023 Plan or an Existing Plan Award and later forfeited to us due to the failure to vest or repurchased by us at the original purchase price paid to us for the shares (including without limitation upon forfeiture to or repurchase by us in connection with a participant ceasing to be a service provider) shall again be available for future grant under the 2023 Plan. To the extent a stock award under the 2023 Plan or Existing Plan Award is paid out in cash rather than shares, such cash payment will not result in reducing the number of shares available for issuance under the 2023 Plan.
Serve Robotics 2021 Equity Incentive Plan
The Company has adopted the Serve Robotics 2021 Equity Incentive Plan (“2021 Plan”), as amended and restated, which provides for the grant of shares of stock options and stock appreciation rights (“SARs”) and restricted common shares to employees, non-employee directors, and non-employee consultants. The number of shares authorized by the 2021 Plan was 4,870,663 shares as of December 31, 2024. The option exercise price generally may not be less than the underlying stock’s fair market value at the date of the grant and generally have a term of ten years. The amounts granted each calendar year to an employee or non-employee is limited depending on the type of award. Stock options granted under the 2021 Plan typically vest over a four-year period, with a one-year cliff as well as via specified milestones.
As of December 31, 2024, there were approximately 1,590,603 shares available to be issued, including forfeited shares from predecessor plans.
A summary of information related to stock options for the years ended December 31, 2024 and 2023 is as follows:
| Options | Weighted Average Exercise Price | Intrinsic Value | |||||||||||||||
| Outstanding as of December 31, 2022 | 861,309 | $ | 0.49 | $ | - | ||||||||||||
| Granted | 765,477 | $ | 0.75 | ||||||||||||||
| Exercised | - | - | |||||||||||||||
| Forfeited | (111,400) | $ | 0.60 | ||||||||||||||
| Outstanding as of December 31, 2023 | 1,515,386 | $ | 0.61 | $ | 5,111,928 | ||||||||||||
| Granted | 110,374 | $ | 4.05 | ||||||||||||||
| Exercised | (511,787) | 0.71 | $ | 6,543,993 | |||||||||||||
| Forfeited | (91,682) | $ | 0.77 | ||||||||||||||
| Outstanding as of December 31, 2024 | 1,022,291 | $ | 0.94 | $ | 12,842,790 | ||||||||||||
| Exercisable as of December 31, 2024 | 554,200 | $ | 0.95 | $ | 6,956,792 | ||||||||||||
| Exercisable and expected to vest at December 31, 2024 | 1,022,291 | $ | 0.94 | $ | 12,842,790 | ||||||||||||
As of December 31, 2024, the weighted average duration to expiration of outstanding options was 7.55 years.
Stock-based compensation expense for stock options of $360,558 and $280,482 was recognized for the years ended December 31, 2024 and 2023, respectively. Total unrecognized compensation cost related to non-vested stock option awards amounted to approximately $208,126 as of December 31, 2024, which will be recognized over a weighted average period of 1.63 years.
The stock options were valued using the Black-Scholes pricing model using the range of inputs as indicated below:
| Years Ended December 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| Risk-free interest rate | 3.82% - 4.50% | 3.58% - 3.91% | |||||||||
| Expected term (in years) | 5.00-6.27 | 5.52-6.27 | |||||||||
| Expected volatility | 75.0 | % | 75.0 | % | |||||||
| Expected dividend yield | 0 | % | 0 | % | |||||||
The weighted average grant date fair value of options granted during 2024 and 2023 were $2.64 and $0.41, respectively.
Classification
Stock-based compensation expense for stock options and restricted common stock (Note 6) was classified in the statements of operations as follows:
| Years Ended December 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| General and administrative | $ | 2,833,862 | $ | 59,002 | |||||||
| Operations | 146,152 | 49,139 | |||||||||
| Research and development | 11,491,617 | 416,838 | |||||||||
| Sales and marketing | 83,295 | 19,396 | |||||||||
| $ | 14,554,926 | $ | 544,375 | ||||||||
About Stock Compensation Disclosures
Stock-based compensation disclosures detail the equity awards granted to employees and executives — including stock options, restricted stock units (RSUs), and performance shares — along with the valuation methods and assumptions used to expense them. This section reveals the true cost of talent retention and the alignment between management incentives and shareholder interests.
Key signals: total unrecognized compensation expense and its expected recognition period signal future earnings headwinds from already-granted awards. For stock options, examine Black-Scholes assumptions — expected volatility, risk-free rate, and expected term — as understating any of these reduces reported compensation expense. Compare stock compensation expense as a percentage of revenue against peers to assess dilution cost. Watch vesting schedules for acceleration clauses tied to change-of-control events. Performance-based awards with undemanding targets may indicate weak governance. Add back stock compensation to operating cash flow to calculate a more conservative free cash flow figure.