STOCK-BASED COMPENSATION

6 Months Ended

Jul. 31, 2020

Notes to Financial Statements

STOCK-BASED COMPENSATION

12. STOCK-BASED COMPENSATION

On May 26, 2020, the Board of Directors of the Company approved and adopted the 2020 Equity Incentive Plan, with an aggregate of 16,000,000 shares issuable under the plan, with a ten-year expiration, and providing that options for no more than 10,000,000 shares be granted as Incentive Stock Options. As of July 31, 2020, stock options for 9,000,000 shares of common stock had been granted.

The Company periodically issues common stock and stock options to officers, directors and consultants for services rendered. Options vest and expire according to terms established at the issuance date of each grant. Stock grants, which are generally time vested, are measured at the grant date fair value and charged to operations ratably over the vesting period.

The fair value of stock options granted as stock-based compensation is determined utilizing the Black-Scholes option-pricing model, and can be affected by several variables, the most significant of which are the expected life of the equity award, the exercise price of the stock option as compared to the fair market value of the common stock on the grant date, and the estimated volatility of the common stock. Estimated volatility is based on the historical volatility of the Company’s common stock over an appropriate calculation period, or, if not available, by reference to the volatility of a representative sample of comparable public companies. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant. The fair market value of the common stock is determined by reference to the quoted market price of the Company’s common stock on the grant date.

The Company recognizes the fair value of stock-based compensation awards in the Company’s consolidated statement of operations.

For stock options requiring an assessment of value during the period from February 11, 2020 (inception) through July 31, 2020, the fair value of each stock option award was estimated using the Black-Scholes option-pricing model with the following assumptions:

Risk-free interest rate	0.34	%
Expected dividend yield	0	%
Expected volatility	37.85	%
Expected life	5 years

Stock-based compensation cost for the period from February 11, 2020 (inception) through July 31, 2020 was $183,472.

A summary of stock option activity during the period from February 11, 2020 (inception) through July 31, 2020 is presented below.

	Number of Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (in Years)
Stock options outstanding at February 11, 2020		—	$	—
Granted		9,000,000		0.10
Exercised		—		—
Expired		—		—
Stock options outstanding at July 31, 2020		9,000,000	$	0.10		10.00
Stock options exercisable at July 31, 2020		5,000,000	$	0.10		10.00

Total deferred compensation expense for the outstanding value of unvested stock options was approximately $117,000 as of July 31, 2020, which will be recognized subsequent to July 31, 2020 over a weighted-average period of approximately two years.

The intrinsic value of exercisable but unexercised in-the-money stock options at July 31, 2020 was approximately $1,700,000 based on a fair market value of $0.44 per share on July 31, 2020.

The Company expects to satisfy such stock obligations through the issuance of authorized but unissued shares of common stock.