Note 12: Stock Based Compensation

Employee Stock Option Plan Increase

In March 2017, the Company adopted its 2017 Stock Option/Stock Issuance Plan (the “Plan”). The Plan provides incentives to eligible employees, officers, directors and consultants in the form of incentive stock options (“ISOs”), non-qualified stock options (“NQs”), (each of which is exercisable into shares of common stock) (collectively, “Options”) or shares of common stock (“Share Grants”).

On July 1, 2020, the Company's board of directors unanimously approved an increase in the number of shares of common stock issuable under the Plan from 250,000 to 3,000,000, and granted options that were contingent upon shareholder approval. Also on July 1, 2020, the board approved the award, primarily to current employees, and subject to shareholder approval no later than the next regularly scheduled annual meeting, of grants of options to purchase 1,235,159 shares of the Company’s common stock at an exercise price of $5.40 per share, which was the closing price of the Company’s common stock as reported by Nasdaq at the close of trading on the day of the board’s action. Of the options awarded, 995,000 are designated as ISOs, and 280,159 are designated as NQs or “non-statutory” options under the Internal Revenue Code. These options have a 10-year life, and will vest over a four-year period, with 25% vesting on July 1, 2021, and the remainder vesting ratably on a quarterly basis over the following three years. During Fiscal 2021, an additional 270,937 ISOs were granted at exercise prices between $3.44 and $5.40 per share (the closing price of the Company’s common stock as reported by Nasdaq on the date of the grant), and 148,959 of the ISOs granted between July 1, 2020 and August 31, 2021 were cancelled. The remaining 1,357,137 ISOs are reported as non-exercisable in the table below.

On March 31, 2021, the Company’s shareholders approved the increase in the number of shares of common stock issuable under the Plan as well as the various contingent grant awards under the Plan since July 1, 2020. As such, all previously unexercisable option grant awards became exercisable and the option awards granted since July 1, 2020 were no longer subject to any contingency not set forth in the Plan.

On June 4, 2021, the Company registered an aggregate of 3,000,000 shares, par value $0.0001 per share, reserved for issuance under the Plan.

For all options granted prior to July 1, 2020, each option is immediately exercisable and has a term of service vesting provision over a period of time as follows: 25% vest after a 12-month service period following the award, with the balance vesting in equal monthly installments over the succeeding 36 months. The options granted on or after July 1, 2020, typically vest over four years, with 25% of the grant vesting one year from the grant date, and the remainder in equal quarterly installments over the succeeding 12 quarters. All options granted to date have a stated ten-year term.

Stock grants are issued at fair value, considered to be the market price on the grant date. The fair value of option awards is estimated on the grant date using the Black-Scholes stock option pricing model.

Following its adoption of ASU 2016-9, the Company elected to account for forfeitures under the Plan as they occur. Any compensation cost previously recognized for an unvested award that is forfeited because of a failure to satisfy a service condition is reversed in the period of the forfeiture.

The Company recognized approximately $1,594,000 and $1,300,000 of compensation expense for Fiscal 2021 and Fiscal 2020, respectively. During Fiscal 2020, the Company fully vested all options granted to personnel who were terminated as a result of the Vensure Asset Sale, as described above, which resulted in the acceleration of 9,737 options and $483,000 of stock-based compensation recorded in “stock-based compensation – general and administrative.”

The Company compensates its board members through grants of common stock for services performed. These services have been accrued within the accounts payable and other accrued liabilities on the consolidated balance sheet. The Company has incurred $169,000 and $150,000 for the Fiscal 2021 and Fiscal 2020, respectively.

At August 31, 2021, the total unrecognized deferred share-based compensation expected to be recognized over the remaining weighted average vesting periods of three years for outstanding grants was $4,191,000.

The following table summarizes the Company’s option grant, exercise and forfeiture activity from August 31, 2019, through August 31, 2021:

 

 

Options outstanding as of August 31, 2021 and August 31, 2020 had aggregate intrinsic value of $0 and $22,000,  respectively.

At August 31, 2021, the total unrecognized deferred share-based compensation expected to be recognized over the remaining weighted average vesting periods of 3.7 years for outstanding grants was $6,000,000.

Option vesting activity from August 31, 2019, through August 31, 2021 was as follows:

 

 

The following table summarizes information about stock options outstanding and vested at August 31, 2021:

 

 

 

The number of options and exercise prices have been presented retroactively for the 1 for 40 reverse stock split, which was effective December 17, 2019.