STOCK-BASED COMPENSATION

3 Months Ended

Aug. 31, 2015

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

STOCK-BASED COMPENSATION

7. STOCK-BASED COMPENSATION

The Company accounted for its stock based compensation in accordance with the fair value recognition provisions of FASB ASC Topic 718, “Compensation – Stock Compensation”.

A. Options

No options were granted in the year ended May 31, 2015.

On June 25, 2015, the Company issued options to its chairman/chief executive officer and an officer/former director for services rendered to the Company’s board of directors in fiscal 2015 to purchase a total of 1,300,000 shares of common stock as follows:

1.        Chairman/chief executive officer – options to purchase 1,000,000 shares of common stock at $0.60 per share.

2.        Officer/former director – options to purchase 300,000 shares of common stock at $0.60 per share.

The options vested immediately and are exercisable for three years. The options issued were valued using the Black-Scholes option pricing model under the assumptions below. The value of the options totaling $1,622,778 was charged as stock compensation in fiscal 2015.

The assumptions are as follows - stock price - $1.75; strike price - $0.60; expected volatility – 91.35%; risk-free interest rate - 0.73%; dividend rate - 0%; and expected term – 1.5 years.

Compensation based stock option activity for qualified and unqualified stock options are summarized as follows:

				Weighted
				Average
	Shares			Exercise Price
Outstanding at June 1, 2014		1,247,917		$	1.53
Granted		—			—
Exercised		—			—
Expired or cancelled		(235,417	)		2.95
Outstanding at May 31, 2015		1,012,500			1.20
Granted		1,300,000			0.60
Exercised		—			—
Expired or cancelled		—			—
Outstanding at August 31, 2015		2,312,500		$	0.86

The following table summarizes information about options outstanding and exercisable at August 31, 2015:

	Options Outstanding and Exercisable
	Number Outstanding		Weighted- Average Remaining Life In Years		Weighted- Average Exercise Price		Number Exercisable
Range of exercise prices:
$0.60		1,300,000		2.82	$	0.60		1,300,000
$1.20		1,012,500		8.64		1.20		1,012,500
		2,312,500		5.37	$	0.86		2,312,500

The compensation expense attributed to the issuance of the options and warrants will be recognized as they vest / earned. These stock options and warrants are exercisable for three to ten years from the grant date.

The employee stock option plan stock options are exercisable for ten years from the grant date and vest over various terms from the grant date to three years.

B. Warrants

The issuance of warrants including those attributed to debt issuances are summarized as follows:

			Weighted
			Average
	Shares		Exercise Price
Outstanding at June 1, 2014		2,401,043	$	1.34
Granted		1,536,943		1.63
Exercised		—		—
Expired or cancelled		—		—
Outstanding at May 31, 2015		3,937,986		1.45
Granted		838,334		2.00
Exercised		—		—
Expired or cancelled		—		—
Outstanding at August 31, 2015		4,776,320	$	1.55

The following table summarizes information about warrants outstanding and exercisable at August 31, 2015:

	Outstanding and exercisable
	Number Outstanding		Weighted- average remaining life in years		Weighted- Average Exercise Price		Number Exercisable
Range of exercise prices:
$1.20		3,004,656		4.14	$	1.20		3,004,656
$2.00		1,671,664		2.99		2.00		1,671,664
$3.00 to $6.00		100,000		1.48		4.50		100,000
		4,776,320		3.13	$	1.55		4,776,320

Issuances of warrants were as follows:

FY 2015 (Year Ended May 31, 2015):  

a. Warrants to purchase 622,947 shares of common stock were issued in exchange for certain past due indebtedness outstanding. Such warrants were determined to have been issued at fair value since such settlements were negotiated by the Company with each debt holder.

b. Warrants to purchase 80,666 shares of common stock were issued to a consultant for services rendered under a consulting contract. The warrants issued were valued using the Black-Scholes option pricing model under the following assumptions: stock price - $0.46 - $1.87; strike price - $1.20; expected volatility - 100.00%; risk-free interest rate - 1.5%; dividend rate - 0%; and expected term - 3 years. See Note 9.

c. As discussed above, warrants to purchase 833,330 shares of common stock were issued under the PPO.

FY 2016 (Year Ended May 31, 2016):  

d. As discussed above, warrants to purchase 838,334 shares of common stock were issued under the PPO.

The expense attributed to the issuances of the warrants was recognized as they vested/earned. These warrants are exercisable for three years from the grant date.