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STOCKHOLDERS EQUITY AND STOCK-BASED COMPENSATION | 12 Months Ended
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May 31, 2022
STOCKHOLDERS EQUITY AND STOCK-BASED COMPENSATION |
STOCKHOLDERS' EQUITY AND STOCK-BASED COMPENSATION | 11. STOCKHOLDERS’ EQUITY AND STOCK-BASED COMPENSATION: STOCK-BASED COMPENSATION: Stock-based compensation expense consists of expenses for stock options, restricted stock units, or RSUs, and employee stock purchase plan, or 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 expense is based on the fair value of the Company’s common stock at the grant date, and is recognized as expense over the employee’s requisite service period. All of the Company’s stock-based compensation is accounted for as equity instruments. The following table summarizes the stock-based compensation expense for the fiscal years ended May 31, 2022, 2021 and 2020 (in thousands, except per share data):
|  | Year Ended May 31, |
|  | 2022 |  |  | 2021 |  |  | 2020 |
Stock-based compensation in the form of stock options, RSUs, and ESPP purchase rights, included in: |  |  |  |  |  |  |  |  |
Cost of sales |  | $ | 234 |  |  | $ | 70 |  |  | $ | 80 |
Selling, general and administrative |  |  | 1,721 |  |  |  | 816 |  |  |  | 631 |
Research and development |  |  | 968 |  |  |  | 215 |  |  |  | 199 |
Net effect on net income (loss) |  | $ | 2,923 |  |  | $ | 1,101 |  |  | $ | 910 |
Effect on net income (loss) per share: |  |  |  |  |  |  |  |  |  |  |  |
Basic |  | $ | 0.11 |  |  | $ | 0.05 |  |  | $ | 0.04 |
Diluted |  | $ | 0.11 |  |  | $ | 0.05 |  |  | $ | 0.04 |
As of and during the year ended May 31, 2022, there were $83,000 stock-based compensation expenses capitalized as part of inventory. As of and during the years ended May 31, 2021 and 2020, there were no stock-based compensation expenses capitalized as part of inventory. During fiscal 2022, 2021 and fiscal 2020, the Company recorded stock-based compensation related to stock options and restricted stock units of $2,071,000, $993,000 and $751,000, respectively. As of May 31, 2022, the total compensation expense related to unvested stock-based awards under the Company’s 2016 Equity Incentive Plan, but not yet recognized, was $1,905,000 which is net of estimated forfeitures of $5,000. This expense will be amortized on a straight-line basis over a weighted average period of approximately 1.3 years. During fiscal 2022, 2021 and fiscal 2020, the Company recorded stock-based compensation related to its ESPP of $935,000, $108,000 and $159,000, respectively. As of May 31, 2022, the total compensation expense related to purchase rights under the ESPP but not yet recognized was $417,000. This expense will be amortized on a straight-line basis over a weighted average period of approximately 0.8 years. Valuation Assumptions Valuation and Amortization Method. The Company estimates the fair value of stock options granted using the Black-Scholes option valuation method 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 the past five to 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 method 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 in fiscal 2022, 2021 and 2020 were estimated using the following weighted average assumptions in the Black-Scholes option valuation method:
|  | Year Ended May 31, |
|  | 2022 |  |  | 2021 |  |  | 2020 |
Expected term (in years) |  | 5 - 6 |  |  |  | 6 |  |  |  | 5 |
Volatility |  |  | 88.0 | % |  |  | 72.0 | % |  |  | 71.5 | %
Risk-free interest rates |  |  | 1.50 | % |  |  | 0.44 | % |  |  | 1.56 | %
Weighted average grant date fair value |  | $ | 4.01 |  |  | $ | 1.12 |  |  | $ | 0.95 |
The fair value of our ESPP purchase rights for the fiscal 2022, 2021 and 2020 was estimated using the following weighted average assumptions:
|  | Year End May 31, |
|  | 2022 |  |  | 2021 |  |  | 2020 |
Expected term (in years) |  | 0.5 – 2.0 |  |  | 0.5 – 2.0 |  |  | 0.5 – 2.0 |
Volatility |  | 101% – 272 | % |  | 74% – 88 | % |  | 62% – 77 | %
Risk-free interest rates |  | 0.05%–2.44 | % |  | 0.04%–0.17 | % |  | 0.14%–1.81 | %
Weighted average grant date fair value |  | $ | 9.68 |  |  | $ | 1.03 |  |  | $ | 0.79 |
EQUITY INCENTIVE PLAN: In October 2006, the Company’s 2006 Equity Incentive Plan was approved by the shareholders, which provides for granting of incentive stock options, non-statutory stock options, restricted stock, restricted stock units, stock appreciation rights, performance units, performance shares and other stock or cash awards as the Company’s Board of Directors may determine. In October 2016, the Company’s 2016 Equity Incentive Plan was approved by the Company’s shareholders. The 2016 Equity Incentive Plan replaced our 2006 Equity Incentive Plan, which was scheduled to expire in October 2016, and will continue in effect until 2026. A total of 4,848,000 shares of common stock have been reserved for issuance under the Company’s 2016 Equity Incentive Plan, which includes 2,248,000 shares that remained available for issuance under the 2006 Equity Incentive Plan. See the Company’s Registration Statement on Form S-8 filed with the Securities and Exchange Commission on November 16, 2021 for further information regarding the 2016 Equity Incentive Plan. As of May 31, 2022, out of the 3,879,000 shares authorized for grant under the 2016 Equity Incentive Plan, 2,052,000 stock options and RSUs were outstanding. As of May 31, 2021, out of the 4,036,000 shares authorized for grant under the 2016 Equity Incentive Plan, 2,898,000 stock options and RSUs were outstanding. As of May 31, 2020, out of the 4,813,000 shares authorized for grant under the 2016 Equity Incentive Plan, 3,163,000 stock options and RSUs were outstanding. The following tables summarize the Company’s stock option and RSU transactions during fiscal 2022, 2021 and 2020 (in thousands):
|  | Available |
|  | Shares |
Balance, May 31, 2019 |  |  | 1,147 |
Additional shares reserved |  |  | 1,196 |
Options granted |  |  | (738 | )
RSUs granted |  |  | (25 | )
Shares withheld for taxes and not issued |  |  | 6 |
Options terminated |  |  | 457 |
Options expired |  |  | (393 | )
Balance, May 31, 2020 |  |  | 1,650 |
Options granted |  |  | (297 | )
RSUs granted |  |  | (340 | )
RSUs cancelled |  |  | 1 |
Shares withheld for taxes and not issued |  |  | 9 |
Options terminated |  |  | 455 |
Options expired |  |  | (341 | )
Balance, May 31, 2021 |  |  | 1,137 |
Additional shares reserved |  |  | 1,414 |
Options granted |  |  | (303 | )
RSUs granted |  |  | (522 | )
RSUs cancelled |  |  | 10 |
Shares withheld for taxes and not issued |  |  | (15 | )
Options terminated |  |  | 105 |
Balance, May 31, 2022 |  |  | 1,826 |
The following table summarized the stock option transactions during fiscal 2022, 2021 and 2020 (in thousands, except per share data):
|  | Outstanding Options |
|  |  |  |  | Weighted |  |  |  |
|  | Number |  |  | Average |  |  | Aggregate |
|  | of |  |  | Exercise |  |  | Intrinsic |
|  | Shares |  |  | Price |  |  | Value |
Balances, May 31, 2019 |  |  | 3,107 |  |  | $ | 2.20 |  |  | $ | 283 |
Options granted |  |  | 738 |  |  | $ | 1.61 |  |  |  |  |
Options terminated |  |  | (457 | ) |  | $ | 1.98 |  |  |  |  |
Options exercised |  |  | (235 | ) |  | $ | 1.22 |  |  |  |  |
Balances, May 31, 2020 |  |  | 3,153 |  |  | $ | 2.17 |  |  | $ | 102 |
Options granted |  |  | 297 |  |  | $ | 1.78 |  |  |  |  |
Options terminated |  |  | (455 | ) |  | $ | 2.31 |  |  |  |  |
Options exercised |  |  | (229 | ) |  | $ | 1.54 |  |  |  |  |
Balances, May 31, 2021 |  |  | 2,766 |  |  | $ | 2.16 |  |  | $ | 807 |
Options granted |  |  | 303 |  |  | $ | 5.37 |  |  |  |  |
Options terminated |  |  | (105 | ) |  | $ | 1.59 |  |  |  |  |
Options exercised |  |  | (1,367 | ) |  | $ | 2.28 |  |  |  |  |
Balances, May 31, 2022 |  |  | 1,597 |  |  | $ | 2.70 |  |  | $ | 9,290 |
Options fully vested and expected to vest at May 31, 2022 |  |  | 1,570 |  |  | $ | 2.69 |  |  | $ | 9,138 |
The options outstanding and exercisable at May 31, 2022 were in the following exercise price ranges (in thousands, except per share data):
|  |  | Options Outstanding |  |  | Options Exercisable |
|  |  | at May 31, 2022 |  |  | at May 31, 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 |
$ | 1.34 |  |  |  | 51 |  |  |  | 5.39 |  |  | $ | 1.34 |  |  |  | 51 |  |  |  | 5.39 |  |  | $ | 1.34 |  |  |  |
$1.64-$1.86 |  |  |  | 659 |  |  |  | 4.02 |  |  | $ | 1.70 |  |  |  | 419 |  |  |  | 3.71 |  |  | $ | 1.69 |  |  |  |
$2.03-$2.42 |  |  |  | 471 |  |  |  | 3.33 |  |  | $ | 2.25 |  |  |  | 408 |  |  |  | 3.21 |  |  | $ | 2.26 |  |  |  |
$2.76-$2.93 |  |  |  | 215 |  |  |  | 5.60 |  |  | $ | 2.91 |  |  |  | 56 |  |  |  | 4.12 |  |  | $ | 2.87 |  |  |  |
$3.46-$3.93 |  |  |  | 104 |  |  |  | 2.17 |  |  | $ | 3.84 |  |  |  | 104 |  |  |  | 2.17 |  |  | $ | 3.84 |  |  |  |
$9.45-$19.85 |  |  |  | 97 |  |  |  | 6.80 |  |  | $ | 10.57 |  |  |  | 4 |  |  |  | 6.64 |  |  | $ | 14.02 |  |  |  |
$1.34-$19.85 |  |  |  | 1,597 |  |  |  | 4.12 |  |  | $ | 2.70 |  |  |  | 1,042 |  |  |  | 3.47 |  |  | $ | 2.22 |  |  | $ | 6,440 |
The total intrinsic values of options exercised were $12,542,000, $152,000 and $160,000 during fiscal 2022, 2021 and 2020, respectively. The weighted average contractual life of the options exercisable and expected to be exercisable at May 31, 2022 was 4.12 years. Options to purchase 1,042,000, 2,045,000 and 2,203,000 shares were exercisable at May 31, 2022, 2021 and 2022, respectively. These exercisable options had weighted average exercise prices of $2.22, $2.26 and $2.25 as of May 31, 2022, 2021 and 2020, respectively. During the fiscal year ended May 31, 2022, RSUs for 209,000 shares were granted to employees.The weighted average market value on the date of the grant of these RSUs was $2.89 per share. During the fiscal year ended May 31, 2022, 158,000 RSUs became fully vested, 40,000 RSUs were withheld to settle payroll taxes, and 10,000 RSUs were cancelled. 185,000 RSUs were outstanding and unvested at May 31, 2022. The intrinsic value of the outstanding and unvested RSUs at May 31, 2022 was $1,554,000. During the fiscal year ended May 31, 2021, RSUs for 170,000 shares, net of 9,000 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 $1.92 per share. During the fiscal year ended May 31, 2021, 37,000 RSUs became fully vested and 1,000 RSUs were cancelled. 132,000 RSUs were outstanding and unvested at May 31, 2021. The intrinsic value of the outstanding and unvested RSUs at May 31, 2021 was $297,000. During the fiscal year ended May 31, 2020, RSUs for 10,000 shares, net of 6,000 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 $1.64 per share. During the fiscal year ended May 31, 2020, 13,000 RSUs became fully vested and there was no cancellation. 10,000 RSUs were outstanding and unvested at May 31, 2020. The intrinsic value of the outstanding and unvested RSUs at May 31, 2020 was $16,000. 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 at the weighted average of $3.41 per share. As of May 31, 2022, all of the revenue goals had been achieved and thus RSUs were fully vested but not issued. For the year ended May 31, 2022, the Company recognized approximately $921,000 in stock-based compensation expense for these performance RSUs. During the fiscal year ended May 31, 2022, RSUs for 43,000 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 $8.02 per share. During the fiscal year ended May 31, 2021, RSUs for 161,000 shares were granted and fully vested to members of the Company’s Board of Directors. The weighted average market value on the date of the grant of these RSUs was $1.81 per share. During the fiscal year ended May 31, 2020, RSUs for 9,000 shares were granted and fully vested to members of the Company’s Board of Directors. The weighted average market value on the date of the grant of these RSUs was $1.64 per share. EMPLOYEE STOCK PURCHASE PLAN: In October 2006, the Company’s shareholders approved the 2006 Employee Stock Purchase Plan. In October 2016, the Company’s shareholders approved the Company’s Amended and Restated 2006 Employee Stock Purchase Plan (the “Purchase Plan”), which amended and restated the 2006 Employee Stock Purchase Plan. The Purchase Plan extended the term of the 2006 Employee Stock Purchase Plan indefinitely. See the Company’s Registration Statements on Form S-8 filed with the Securities and Exchange Commission on November 14, 2016 and November 21, 2018 for further information regarding the Purchase Plan. The Purchase Plan has consecutive, overlapping, twenty-four month offering periods. Each twenty-four-month offering period includes four six-month purchase periods. The offering periods generally begin on the first trading day on or after April 1 and October 1 each year. All employees who work a minimum of 20 hours per week and are customarily employed by the Company (or an affiliate thereof) for at least five months per calendar year are eligible to participate. Under the Purchase Plan, shares are purchased through employee payroll deductions at exercise prices equal to 85% of the lesser of the fair market value of the Company’s common stock at either the first day of an offering period or the last day of the purchase period. If a participant’s rights to purchase stock under all employee stock purchase plans of the Company accrue at a rate which exceeds $25,000 worth of stock for a calendar year, such participant may not be granted an option to purchase stock under the Purchase Plan. The maximum number of shares a participant may purchase during a single purchase period is 3,000 shares. In October 2020, the Company’s shareholders approved an amendment to the Purchase Plan to increase the number of shares authorized for issuance thereunder by an additional 350,000 shares of the Company’s common stock. After such amendment, a total of 2,200,000 shares of the Company’s common stock have been authorized for issuance under the Purchase Plan. During the fiscal years ended May 31, 2022, 2021 and 2020, ESPP purchase rights of 101,000, 279,000, and 55,000 shares, respectively, were granted. For the fiscal years ended May 31, 2022, 2021 and 2020, approximately 178,000, 147,000 and 136,000 shares of common stock, respectively, were issued under the Purchase Plan. As of May 31, 2022, a total of 1,942,000 shares have been issued under the Purchase Plan, and 258,000 ESPP shares remain available for issuance.

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