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STOCK-BASED COMPENSATION
 9 Months Ended
Feb. 28, 2022
STOCK-BASED COMPENSATION  
STOCK-BASED COMPENSATION

14. STOCK-BASED COMPENSATION

 

Stock-based compensation expense consists of expenses for stock options, RSUs including performance-based grants, and ESPP purchase rights. Stock-based compensation expense for stock options and ESPP purchase rights is measured at each grant date, based on the fair value of the award using the Black-Scholes option valuation model, and is recognized as expense over the employee’s requisite service period. This model was developed for use in estimating the value of publicly traded options that have no vesting restrictions and are fully transferable. The Company’s employee stock options have characteristics significantly different from those of publicly traded options. For RSUs, stock-based compensation cost is based on the fair value of the Company’s common stock at the grant date. All of the Company’s stock-based compensation is accounted for as an equity instrument. See Note 11 in the Company’s Annual Report on Form 10-K for fiscal 2021 filed on August 27, 2021 for further information regarding the 2016 Equity Incentive Plan (the “2016 Plan”) and the ESPP.

 

The following table summarizes the stock-based compensation expense for the three and nine months ended February 28, 2022 and 2021 (in thousands):

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

February 28, 

 

 

February 28,  

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Stock-based compensation in the form of employee stock options, RSUs and ESPP purchase rights, included in:

 

 

 

 

 

 

 

 

 

 

 

 

Cost of sales

 

$90

 

 

$14

 

 

$248

 

 

$45

 

Selling, general and administrative

 

 

487

 

 

 

194

 

 

 

1,259

 

 

 

593

 

Research and development

 

 

303

 

 

 

63

 

 

 

679

 

 

 

160

 

Total stock-based compensation

 

$880

 

 

$271

 

 

$2,186

 

 

$798

 

As of February 28, 2022 and 2021, there were no stock-based compensation expenses capitalized as part of inventory.

 

During the three months ended February 28, 2022 and 2021, the Company recorded stock-based compensation expense related to stock options and RSUs under the 2016 Plan of $516,000 and $253,000, respectively. During the nine months ended February 28, 2022 and 2021, the Company recorded stock-based compensation expense related to stock options and RSUs of $1,416,000 and $736,000, respectively.

 

As of February 28, 2022, the total compensation expense related to unvested stock-based awards under the 2016 Plan, but not yet recognized, was approximately $1,915,000. This expense will be amortized on a straight-line basis over a weighted average period of approximately 1.2 years.

 

During the three months ended February 28, 2022 and 2021, the Company recorded stock-based compensation expense related to the ESPP of $364,000 and $18,000, respectively. During the nine months ended February 28, 2022 and 2021, the Company recorded stock-based compensation expense related to the ESPP of $770,000 and $62,000, respectively.

 

As of February 28, 2022, the total compensation expense related to purchase rights under the ESPP but not yet recognized was approximately $648,000. This expense will be amortized on a straight-line basis over a weighted average period of approximately 1.0 years.

 

Valuation Assumptions

 

Valuation and Amortization Method. The Company estimates the fair value of stock options granted using the Black-Scholes option valuation model and a single option award approach. The fair value under the single option approach is amortized on a straight-line basis over the requisite service periods of the awards, which is generally the vesting period.

 

Expected Term. The Company’s expected term represents the period that the Company’s stock-based awards are expected to be outstanding and was determined based on historical experience, giving consideration to the contractual terms of the stock-based awards, vesting schedules and expectations of future employee behavior as evidenced by changes to the terms of its stock-based awards.

 

Volatility. Volatility is a measure of the amounts by which a financial variable such as stock price has fluctuated (historical volatility) or is expected to fluctuate (expected volatility) during a period. The Company uses the historical volatility for five or six years based on weighted average of the expected term of option grants, to estimate expected volatility. Volatility for each of the ESPP’s four time periods of six months, twelve months, eighteen months, and twenty-four months is calculated separately and included in the overall stock-based compensation expense recorded.

 

Risk-Free Interest Rate. The Company bases the risk-free interest rate used in the Black-Scholes option valuation model on the implied yield in effect at the time of option grant on U.S. Treasury zero-coupon issues with a remaining term equivalent to the expected term of the stock awards including the ESPP.

 

Fair Value. The fair values of the Company’s stock options granted to employees for the three and nine months ended February 28, 2022 and 2021, were estimated using the following weighted average assumptions in the Black-Scholes option valuation model:

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

February 28,  

 

 

February 28,

 

 

 

2022

 

 

2022

 

 

2021

 

 

 

 

 

 

 

 

 

 

 

Expected term (in years)

 

 

5

 

 

 

6

 

 

 

6

 

Volatility

 

 

117%

 

 

77%

 

 

72%

Risk-free interest rate

 

 

1.56%

 

 

1.03%

 

 

0.39%

Weighted average grant date fair value

 

$9.43

 

 

$2.56

 

 

$1.09

 

 

There were no stock options granted during the three months ended February 28, 2021.

 

The fair values of the ESPP purchase rights granted for the nine months ended February 28, 2022 and 2021 were estimated using the following assumptions:

 

 

 

 Nine Months Ended

 

 

 Nine Months Ended

 

 

 

February 28, 2022

 

 

February 28, 2021

 

 

 

 

 

 

 

Expected term (in years)

 

0.5-2.0

 

 

0.5-2.0

 

Volatility

 

 101%-143%

 

 

     74%-82%

 

Risk-free interest rates

 

0.05%-0.27%

 

 

0.10%-0.14%

 

Weighted average grant date fair value

 

$9.57

 

 

$0.44

 

 

There were no ESPP purchase rights granted to employees for the three months ended February 28, 2022 and 2021. During the nine months ended February 28, 2022 and 2021, ESPP purchase rights of 103,000 and 81,000 were granted, respectively. Total ESPP shares issued during the nine months ended February 28, 2022 and 2021 were 75,000 and 72,000 shares, respectively. There were 361,000 and 511,000 ESPP shares available for issuance as of February 28, 2022 and 2021, respectively.

 

The following tables summarize the Company’s stock option and RSU transactions during the three and nine months ended February 28, 2022 and shows the shares available to be issued at the end of each period (in thousands):

 

 

 

Available

 

 

 

Shares

 

Balance, May 31, 2021

 

 

1,137

 

 

 

 

 

 

Options granted

 

 

(206)

RSUs granted

 

 

(238)

Options cancelled and adjusted

 

 

(8)

 

 

 

 

 

Balance, August 31, 2021

 

 

685

 

 

 

 

 

 

Options reserved                         

 

 

1,414

 

Options granted

 

 

(10)

RSUs granted

 

 

(14)

RSUs performance-based grants

 

 

(270)

Options cancelled

 

 

51

 

 

 

 

 

 

Balance, November 30, 2021

 

 

1,856

 

 

 

 

 

 

Options granted

 

 

(2)

RSUs cancelled

 

 

10

 

Options cancelled

 

 

41

 

 

 

 

 

 

Balance, February 28, 2022

 

 

1,905

 

The following table summarizes the stock option transactions during the three and nine months ended February 28, 2022 (in thousands, except per share data):

 

 

 

           Outstanding Options

 

 

 

 

 

 

Weighted

 

 

 

 

 

 

Number

 

 

Average

 

 

Aggregate

 

 

 

of

 

 

Exercise

 

 

Intrinsic

 

 

 

Shares

 

 

Price

 

 

Value

 

Balances, May 31, 2021

 

 

2,766

 

 

$2.16

 

 

$807

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Options granted

 

 

206

 

 

$2.93

 

 

 

 

 

Options cancelled

 

 

(6)

 

$1.95

 

 

 

 

 

Options exercised

 

 

(641)

 

$2.46

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances, August 31, 2021

 

 

2,325

 

 

$2.14

 

 

$12,365

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Options granted

 

 

10

 

 

$19.85

 

 

 

 

 

Options cancelled

 

 

(51)

 

$1.73

 

 

 

 

 

Options exercised

 

 

(571)

 

$2.14

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances, November 30, 2021

 

 

1,713

 

 

$2.26

 

 

$25,997

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Options granted

 

 

2

 

 

$11.55

 

 

 

 

 

Options cancelled

 

 

(41)

 

$1.22

 

 

 

 

 

Options exercised

 

 

(66)

 

$2.03

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balances, February 28, 2022

 

 

1,608

 

 

$2.29

 

 

$18,248

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Options fully vested and expected to vest at February 28, 2022

 

 

1,582

 

 

$2.30

 

 

$17,952

 

The options outstanding and exercisable at February 28, 2022 were in the following exercise price ranges (in thousands, except per share data):

 

 

 

Options Outstanding at February 28, 2022

 

 

Options Exercisable at February 28, 2022

 

Range of Exercise

Prices

 

Number Outstanding Shares

 

 

Weighted Average Remaining Contractual Life (Years)

 

 

Weighted Average Exercise Price

 

 

Number Exercisable Shares

 

 

Weighted Average Remaining Contractual Life (Years)

 

 

Weighted Average Exercise Price

 

 

Aggregate Intrinsic Value

 

$1.22-$1.34

 

 

51

 

 

 

5.64

 

 

$1.34

 

 

 

51

 

 

 

5.64

 

 

$1.34

 

 

 

 

$1.64-$1.86

 

 

671

 

 

 

4.27

 

 

$1.71

 

 

 

387

 

 

 

3.89

 

 

$1.69

 

 

 

 

$2.03-$2.46

 

 

547

 

 

 

3.13

 

 

$2.23

 

 

 

447

 

 

 

2.92

 

 

$2.23

 

 

 

 

$2.63-$2.93

 

 

223

 

 

 

5.87

 

 

$2.92

 

 

 

47

 

 

 

4.01

 

 

$2.86

 

 

 

 

$3.46-$3.93

 

 

104

 

 

 

2.42

 

 

$3.84

 

 

 

104

 

 

 

2.42

 

 

$3.84

 

 

 

 

$9.94-$19.85

 

 

12

 

 

 

6.69

 

 

$16.54

 

 

 

1

 

 

 

6.65

 

 

$19.46

 

 

 

 

$1.22-$19.85

 

 

1,608

 

 

 

4.04

 

 

$2.29

 

 

 

1,037

 

 

 

3.42

 

 

$2.19

 

 

$11,831

 

 

The total intrinsic value of options exercised during the three and nine months ended February 28, 2022 was $867,000 and $11,902,000, respectively. The total intrinsic value of options exercised during the three and nine months ended February 28, 2021 was $57,000 and $151,000, respectively. The weighted average remaining contractual life of the options exercisable and expected to be exercisable at February 28, 2022 was 4.04 years. The weighted average remaining contractual life of the options exercisable and expected to be exercisable at February 28, 2021 was 3.68 years.

 

There were no RSUs granted to employees during the three months ended February 28, 2022. During the nine months ended February 28, 2022, RSUs for 169,000 shares, net of 40,000 shares withheld to settle payroll taxes, were granted to employees. The weighted average market value on the date of the grant of these RSUs was $2.98 per share. During the three and nine months ended February 28,2022, 21,000 and 50,000 RSUs became fully vested, respectively. As of February 28, 2022, 475,000 RSUs remain unvested which had an intrinsic value of $6,460,000. During the three months ended February 28, 2021, RSUs for 4,000 shares, net of 4,000 shares withheld to settle payroll taxes, were granted and fully vested to employees. The market value on the date of the grant of these RSUs was $2.25 per share. During the nine months ended February 28, 2021, RSUs for 165,000 shares, net of 4,000 shares withheld to settle payroll taxes, were granted to employees. The weighted average market value on the date of the grant of these RSUs was $1.87 per share. During the three and nine months ended February 28, 2021, 19,000 and 34,000 RSUs became fully vested, respectively. As of February 28, 2021, 143,000 RSUs remain unvested which had an intrinsic value of $400,000.

 

Early in fiscal 2022, the Board of Directors approved the granting of performance-based RSUs to key officers based upon revenue thresholds for the year ended May 31, 2022. The total maximum amount of RSUs to be vested if all revenue goals are achieved will be approximately 270,000. As of February 28, 2022 none of the revenue goals have been achieved and thus none of the RSUs are vested. The Company expects that by year end all the revenue goals will be achieved. During the three and nine months ended February 28, 2022 the Company recognized approximately $278,000 and $524,000, respectively, in stock-based compensation expense for these performance RSUs.

 

There were no RSUs granted to members of the Company’s Board of Directors during the three months ended February 28, 2022. During the nine months ended February 28, 2022, RSUs for 43,000 shares were granted to members of the Company’s Board of Directors. The weighted average market value on the dates of the grant of these RSUs was $8.02 per share. During the nine months ended February 28, 2022, 33,000 RSUs to the members of the Company’s Board of Directors became fully vested. As of February 28, 2022, 10,000 RSUs remain unvested which had an intrinsic value of $136,000. During the three months ended February 28, 2021, RSUs for 34,000 shares were granted to members of the Company’s Board of Directors. The market value on the date of the grant of these RSUs was $2.25 per share. During the nine months ended February 28, 2021, RSUs for 126,000 shares were granted to members of the Company’s Board of Directors. The weighted average market value on the date of the grant of these RSUs was $1.73 per share. All of these RSUs were immediately fully vested.