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Stock Options
12 Months Ended
Aug. 31, 2019
Notes to Financial Statements  
NOTE 7 - Stock Options

NOTE 7 - Stock Options

 

Stock option grants pursuant to the 2006 Plan vest either immediately or over one to five years and expire from six to ten years after the date of grant. Stockholders previously approved 5,000,000 shares for grant under the 2006 Plan, of which 1,064,085 remain available for grant, 1,305,001 have been exercised in total with 629,677 net shares (due to a cashless exercise feature) issued pursuant to such exercises of vested options from inception of the 2006 Plan through August 31, 2019. All shares approved for grant and subsequently forfeited are available for future grant. The Company does not repurchase shares to fulfill the requirements of options that are exercised and therefore issues new shares when options are exercised. The 2006 Plan was approved by stockholders on February 7, 2011 and expires according to its terms on February 7, 2021.

 

The Company employs the following key weighted-average assumptions in determining the fair value of stock options, using the Black-Scholes option pricing model and the simplified method to estimate the expected term of “plain vanilla” options:

 

   Years Ended August 31,
   2019  2018
Expected dividend yield          
Expected stock price volatility  87.42 87.84%  83.43% 83.55%
Risk-free interest rate    1.84%    2.27% - 2.33%
Expected term (in years)  4.5 5.0    7.67  
Exercise price    $3.54    $4.87 - $5.35
Weighted-average grant date fair-value  $2.35 $2.43  $3.76 - $5.64

 

A summary of the Company’s stock option activity for the years ended August 31, 2019 and 2018 and related information follows:

 

   Number of Shares Subject to Option Grants  Weighted Average Exercise Price ($)  Weighted Average Remaining Contractual Term (years)  Aggregate Intrinsic Value ($)
Outstanding at August 31, 2017   2,125,001    2.84           
Grants   1,263,000    5.25           
Exercises   (291,667)   3.32           
Forfeitures and cancellations   (1,805,000)   2.74           
Outstanding at August 31, 2018   1,291,334    5.22           
Grants   1,506,000    3.54           
Forfeitures and cancellations   (20,000)   4.87           
Outstanding at  August 31, 2019   2,777,334    4.31    8.33    0 
Exercisable at  August 31, 2019   1,716,234    4.17    9.00    0 

 

The aggregate intrinsic value in the table above represents the total pretax intrinsic value for all “in-the-money” options (i.e. the difference between the Company’s closing stock price on the last trading day of the period covered by this report and the exercise price, multiplied by the number of shares) that would have been received by the option holders had all in-the-money option holders exercised their vested options on August 31, 2019. The intrinsic value of the option changes based upon the fair market value of the Company’s common stock. Since the closing stock price was $2.71 on August 30, 2019 and no outstanding options have an exercise price below $2.719 per share, as of August 31, 2019, there is no intrinsic value to the Company’s outstanding stock options.

 

Year Ended August 31, 2019

 

On July 5, 2019, the Company’s Board granted 498,000 options to directors and employees with an exercise price of $3.54, vesting at the rate of 1/20th per quarter and six year term. Additionally, on July 5, 2019, the Board granted to Jatinder Bhogal, Director, 1,008,000 stock purchase options with an exercise price of $3.54, exercisable on a cashless basis, ten year term and immediate vesting of the entire grant.

 

Due to his resignation from the Board of Directors on October 22, 2018, Joseph Sierchio forfeited 20,000 unvested stock options with an exercise price of $4.87 which resulted in the Company reversing previously recorded stock compensation expense related to the vesting of said options in the amount of $58,367.

 

Year Ended August 31, 2018

 

On November 21, 2017, the Company’s Board granted 255,000 options to directors and employees with an exercise price of $4.87.

 

On December 27, 2017, the Company entered into an employment agreement with John Conklin pursuant to which Mr. Conklin was granted 1,008,000 stock purchase options with an exercise price of $5.35 per share, vesting at the rate of 1/48th per month and exercisable on a cashless basis. Mr. Conklin’s prior employment agreement expired on December 31, 2017 resulting in the forfeiture of 300,000 options with a performance condition that was not achieved.

 

During the year ended August 31, 2018, there were 291,667 options exercised on a cashless basis resulting in the issuance of 146,162 shares of common stock and 5,000 unvested options forfeited resulting in a reduction to stock compensation expense of $5,157. The aggregate intrinsic value of the options exercised was $1,045,135.

 

The following table sets forth the share-based compensation cost resulting from stock option grants, including those previously granted and vesting over time, that were recorded in the Company’s Statements of Operations for the years ended August 31, 2019 and 2018:

 

   Years ended August 31,
   2019  2018
Stock based compensation expense related to the following:          
Stock Options:          
SG&A  $2,993,532   $1,018,351 
R&D   965,835    796,974 
Total   3,959,367    1,815,325 
Restricted stock issuances:          
SG&A   -    1,022,700 
R&D   -    - 
Total   -    1,022,700 
Total stock based compensation expense  $3,959,367   $2,838,025 

 

As of August 31, 2019, the Company had $4,427,233 of unrecognized compensation cost related to unvested stock options which is expected to be recognized over a period of 4.75 years.

 

The following table summarizes information about stock options outstanding and exercisable at August 31, 2019:

 

   Stock Options Outstanding  Stock Options Exercisable
Range of
Exercise
Prices
  Number of Shares
Subject to
Outstanding Options
  Weighted
Average
Contractual
Life (years)
  Weighted
Average
Exercise
Price ($)
  Number
of Shares Subject
To Options
Exercise
  Weighted Average
Remaining
Contractual
Life (Years)
  Weighted
Average
Exercise
Price ($)
                               
3.28   7,500    7.21    3.28    7,500    7.21    3.28 
3.46   35,000    6.35    3.46    35,000    6.35    3.46 
3.54   1,506,000    8.53    3.54    1,032,900    9.76    3.54 
4.87   187,500    8.23    4.87    187,500    8.23    4.87 
5.35   1,008,000    8.35    5.35    420,000    8.35    5.35 
5.94   33,334    1.32    5.94    33,334    1.32    5.94 
Total   2,777,334    8.33    4.31    1,716,234    9.00    4.17