Share-Based Compensation

3 Months Ended

Oct. 31, 2021

Share-based Payment Arrangement [Abstract]

Share-Based Compensation

7. Share-Based Compensation

Restricted Stock Units

The Company issues restricted stock unit awards (“RSUs”) to key management and as compensation for services to consultants and others. The RSUs typically vest over a two-year period and carry a ten-year term. Each RSU represents the right to receive one share of common stock, issuable at the time the RSU subsequently settles, as set forth in the Restricted Stock Unit Agreement. The Company determines that fair value of those awards at the date of grant, and amortizes those awards as an expense over the vesting period of the award. The shares earned under the grant are usually issued when the award settles at the end of the term.

On October 4, 2018, the Board of Directors appointed Tom Myers as the Company’s Chief Operating Officer. In connection with Mr. Myers appointment, the Board agreed to grant him 500,000 RSUs upon the achievement by the Company of profitability for a fiscal quarter, after which such RSUs shall vest annually over the following three years. In May 2020, the 500,000 RSUs were formally granted to Mr. Myers due to the Company’s profitable April 30, 2020 fiscal quarter. During the three months ended October 31, 2021 there were no Restricted Stock Units granted.

During the three months ended October 31, 2021 and 2020, the Company recognized $21,000 of compensation cost relating to the shares vesting during the period, respectively.

During the three months ended October 31, 2021, 650,000 RSUs were issued and delivered. Of the 1,362,500 RSUs outstanding as of October 31, 2021, 1,029,167 RSUs are vested and issuable. These RSUs are issued upon settlement date which is defined as “for each Vested Unit, the earliest of (i) the ten-year anniversary of the Grant Date; (ii) sixty days after the date the Grantee’s Service ceases for any reason and such cessation constitutes a “separation from service” within the meaning of Section 409A of the Code; (iii) the date of Grantee’s death or (iv) the date of a Change in Control that constitutes a “change in control event” within the meaning of Section 409A of the Code”.

As of October 31, 2021, there was $123,000 of unrecognized non-cash compensation cost related to the remaining 333,333 RSUs we expect to vest, which will be recognized over a weighted average period of 1.50 years.

A summary of our restricted stock unit activity and related data is as follows:

	Total RSU Shares			Vested and Issuable
Outstanding at July 31, 2021		2,012,500			1,679,167
Granted		—			—
Issued		(650,000	)		(650,000	)
Forfeited		—			—
Outstanding at October 31, 2021		1,362,500			1,029,167

Stock Option Plans

2007 Equity Incentive Plan

In February 2016, we amended and restated our 2007 Equity Incentive Plan, the (“2007 Plan”), to, among other changes, increase the number of shares of common stock issuable under the 2007 Plan by 4,000,000 shares and extend the term of the 2007 Plan until February 4, 2026. The 2007 Plan provides for the grant of incentive and non-qualified stock options, as well as other share-based payment awards, to our employees, directors, consultants and advisors. These awards have up to a 10-year contractual life and are subject to various vesting periods, as determined by the Compensation Committee of the Board of Directors. As of October 31, 2021, there were approximately 1,552,000 shares available for issuance under the 2007 Plan.

2017 Equity Incentive Plan

In January 2021, we amended and restated our 2017 Equity Incentive Plan, the (“2017 Plan”), to, among other changes, increase the number of shares of common stock issuable under the 2017 Plan by 5,000,000 shares and extend the term of the 2007 Plan until January 2031. The 2017 Plan provides for the grant of incentive and non-qualified stock options, as well as other share-based payment awards, to our employees, directors, consultants and advisors. These awards have up to a 10-year contractual life and are subject to various vesting periods, as determined by the Compensation Committee of the Board of Directors. As of October 31, 2021, there were approximately 3,856,000 shares available for issuance under the 2017 Plan.

During the three months ended October 31, 2021, we authorized the issuance of 70,000 stock options to a new employee. The options have a fair value of $18,000 as determined by the Black Scholes option pricing model, vest over a three year period and carry a ten year term. There were no stock options granted during the three months ended October 31, 2020.

A summary of our stock option activity is as follows:

	Shares			Weighted- Average Exercise Price		Aggregate Intrinsic Value
Outstanding at July 31, 2021		8,644,125		$	0.76	$	124,000
Granted		70,000		$	0.40		1,000
Exercised		—		$	—		—
Cancelled		(1,500,000	)	$	1.13		—
Outstanding at October 31, 2021		7,214,125		$	0.67	$	76,000

The weighted-average remaining contractual term of options outstanding at October 31, 2021 was 6.17 years.

At October 31, 2021, options to purchase 5,593,500 shares of common stock were exercisable. These options had a weighted-average exercise price of $0.72 and a weighted average remaining contractual term of 5.24 years. The total unrecognized compensation cost related to unvested stock option grants as of October 31, 2021 was approximately $354,000 and the weighted average period over which these grants are expected to vest is 1.00 years.

For the three months ended October 31, 2021 share-based compensation expense for stock options that vested during the period was $169,000.For the three months ended October 31, 2020 share-based compensation expense for stock options that vested during the period was $208,000.

We use the Black-Scholes valuation model to calculate the fair value of stock options. Stock-based compensation expense is recognized over the vesting period using the straight-line method. The fair value of stock options was estimated at the grant date using the following weighted average assumptions:

	For the three months ended October 31,
	2021			2020
Volatility		85.61	%		—	%
Risk-free interest rate		0.84	%		—	%
Dividend yield		—	%		—	%
Expected life		5.99			—

Volatility is the measure by which our stock price is expected to fluctuate during the expected term of an option. Volatility is derived from the historical daily change in the market price of our common stock, as we believe that historical volatility is the best indicator of future volatility.

The risk-free interest rates used in the Black-Scholes calculations are based on the prevailing U.S. Treasury yield as determined by the U.S. Federal Reserve.

We have never paid dividends on our common stock and do not anticipate paying dividends on our common stock in the foreseeable future. Accordingly, we have assumed no dividend yield for purposes of estimating the fair value of our share-based compensation.

The expected life of options was estimated using the average between the contractual term and the vesting term of the options.