Note 6: Stock Based Compensation

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”). The Company had reserved a total of 250,000 of common stock for issuance under the Plan as of February 28, 2021, which was previously approved by the Company’s shareholders. Of these 250,000 approved shares, as of February 28, 2021, approximately 93,000 options and 7,000 shares had been designated by the Board of Directors for issuance and approximately 40,000 of the options had been forfeited and returned to the option pool under the Plan due to employment terminations. As of February 28, 2021, approximately 209,000 shares remained issuable, of which 167,000 were eligible to be issued as ISOs and 209,000 as either share grants or NQs. Under the Plan, as previously approved by the Company’s shareholders, a total of 40,818 options were outstanding as of February 28, 2021 and are reported as exercisable in the table below. 

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. All options granted to date have a ten-year term.

On July 1, 2020, our 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, subject to approval by a majority of the Company’s stockholders. As of February 28, 2021 the Company has granted 1,781,355 options under the Plan that are subject to stockholder approval and are reported as non-exercisable in the table below.  The options granted since 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. On March 31, 2021, the Company’s stockholders approved the increase in the number of shares of common stock issuable under the Plan from 250,000 to 3,000,000 shares, as well as the various grant awards under the Plan since July 1, 2020.

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 our adoption of ASU 2016-09, we 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 $441,000 and $863,000 of compensation expense for the three and six months ended February 28, 2021, respectively. The Company recognized approximately $556,000 and $670,000 of compensation expense for the three and six months ended February 28, 2020, respectively.

At February 28, 2021, the total unrecognized deferred stock-based compensation expected to be recognized over the remaining weighted average vesting periods of 3.3 years for outstanding grants was $5.3 million.

The following table summarizes option activity during the six months ended February 28, 2021:

 

 

Options outstanding as of February 28, 2021 had aggregate intrinsic value of $116,000.

Option vesting activity during the six months ended February 28, 2021 was as follows:

 

 

The following table summarizes information about stock options outstanding and vested at February 28, 2021:

 

 

The options not exercisable were conditionally granted by our Board of Directors between July 1, 2020 and February 28, 2021 and are not exercisable until stockholder approval is received for the increase in the option pool. As discussed above, stockholder approval was obtained on March 31, 2021.