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Stock-Based Compensation

12 Months Ended

Sep. 30, 2020

Share-based Payment Arrangement [Abstract]

NOTE 9 - Stock-Based Compensation

During the years ended September 30, 2019 and 2020, stock-based expense related to the stock options, restricted stock units and stock awards was included in general and administrative and research and development costs as follows in the accompanying statements of operations:

	2020		2019
General and administrative	$	1,623,629	$	357,318
Research and development		212,341		134,431
Total stock-based compensation expense	$	1,835,970	$	491,749

The Company's 2016 and 2017 Equity Incentive Plans provide for the issuance of restricted shares and stock options to employees, directors, and consultants of the Company. The Company initially reserved 2,292,265 shares of common stock for issuance under the 2016 and 2017 Equity Incentive Plans on a combined basis.

Evergreen provision

Under the 2017 Plan, the shares reserved automatically increase on January 1st of each year, for a period of not more than ten years from the date the 2017 Plan is approved by the stockholders of the Company, commencing on January 1, 2019 and ending on (and including) January 1, 2027, to an amount equal to 13% of the fully-diluted shares outstanding as of December 31st of the preceding calendar year. Notwithstanding the foregoing, the Board may act prior to January 1st of a given year to provide that there will be no January 1st increase in the share reserve for such year or that the increase in the share reserve for such year will be a lesser number of shares of common stock than would otherwise occur pursuant to the preceding sentence. "Fully Diluted Shares" as of a date means an amount equal to the number of shares of common stock (i) outstanding and (ii) issuable upon exercise, conversion or settlement of outstanding awards under the 2017 Plan and any other outstanding options, warrants or other securities of the Company that are (directly or indirectly) convertible or exchangeable into or exercisable for shares of common stock, in each case as of the close of business of the Company on December 31 of the preceding calendar year. On January 1, 2020 and 2019, 1,286,791 and 498,848 shares were added to the 2017 Plan, respectively, as a result of the evergreen provision.

Stock Options

During the years ended September 30, 2020 and 2019, 1,004,175 and 675,667 stock options were granted to employees, directors and consultants at a weighted average exercise price of $2.06 and $2.32 per share, respectively. The stock options granted during the year ended September 30, 2020 and 2019 had a weighted average grant date fair value of $1.01 and $1.13 per share, respectively, with the vesting period ranging from being immediate to four years. The options expire ten years from the date of grant. The total expense for the years ended September 30, 2020 and 2019 to the stock options was $798,242 and $324,205, respectively.

The following table summarizes the Company's stock option plan activity for the years ended September 30, 2020 and 2019 as follows:


	Number of Options			Weighted Average Exercise Price		Weighted- Average Remaining Contractual Term (years)		Aggregate Intrinsic Value(1)
Outstanding at September 30, 2018		368,216		$	0.07		8.6	$	820,862
Granted		675,667		$	2.32		—
Exercised		(198,043	)	$	0.27		—
Forfeited/Cancelled		—		$	—		—
Outstanding at September 30, 2019		845,840		$	1.82		9.0	$	343,406
Granted		1,004,175		$	2.06		—
Exercised		(76,545	)	$	0.04		—
Forfeited/Cancelled		(294,985	)	$	1.97		—
Outstanding at September 30, 2020		1,478,485		$	2.04		8.8	$	96,088
Vested and exercisable at September 30, 2020		761,998		$	1.99		8.6	$	96,088

(1)

The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying options and the estimated fair value of our common stock as of September 30, 2020 and 2019 of $1.29 and $1.87 per share, respectively. As of September 30, 2020, 1,401,940 and 685,453 outstanding and vested options, respectively, have no intrinsic value.

The weighted-average assumptions used in the Black-Scholes option-pricing model are as follows for the stock options granted during the years ended September 30, 2020 and 2019:

	2020			2019
Expected stock price volatility		53.1	%		50.4	%
Expected life of options (years)		5.6			5.6
Expected dividend yield		0	%		0	%
Risk free interest rate		1.4	%		2.4	%

During the year ended September 30, 2020, 594,536 stock options vested having a weighted average grant date fair value per option of $1.02. During the year ended September 30, 2019, 288,138 stock options vested having a weighted average grant date fair value per option of $1.11. During the years ended September 30, 2020 and 2019, 294,985 and zero options were forfeited, respectively.

Restricted Stock Units

During the year ended September 30, 2020 and 2019, 234,964 and 42,018 restricted stock units ("RSUs") were granted to members of its board of directors and consultants that vest over a period ranging from immediate to two years, with a grant date fair value of $2.09 and $2.38 per unit, respectively. During the years ended September 30, 2020 and 2019, 179,378 and 10,503 RSUs vested, respectively. The total expense for the years ended September 30, 2020 and 2019 to the RSU's was $396,012 and $25,001, respectively. The number of RSUs forfeited during the year ended September 30, 2020 and 2019 was 7,003 and zero, respectively.

Other Stock-Based Awards

2020 Activity

In October 2019, two consulting agreements were executed whereby up to 115,000 shares of common stock were issued as of September 30, 2020 of which 115,000 shares of common stock were vested as of September 30, 2020 under these agreements. On April 22, 2020, the Company entered into an amendment (the "Amendment") to one of the consulting agreements. Pursuant to the Amendment, the Company issued an additional 35,000 shares in exchange for consulting services of which 35,000 shares of common stock were vested as of September 30, 2020 under the Amendment. Vesting was based on a time-based vesting condition ranging over a three to nine-month period commencing upon the execution of the consulting agreements.

In February 2020, an additional consulting agreement was executed whereby up to 90,000 shares of common stock were issuable of which 90,000 shares of common stock were issued and vested as of September 30, 2020 under this agreement. In addition, on May 21, 2020, 66,583 shares of common stock were issued as compensation to a former 2019 Paulson Note holder related to a prior 2019 Paulson Note conversion and release of liability.

In August 2020, an additional consulting agreement was executed whereby 120,000 shares of common stock were issued, subject to Company repurchase. The stock award under the agreement vests over a six-month period. As of September 30, 2020, 20,000 shares vested under this agreement.

Compensation expense related to the stock awards granted under the consulting agreements and to the former 2019 Paulson Note holder referenced above amounted to $641,716 for the year ended September 30, 2020 and was included in the total stock-based expense. The expense was based on the fair value of the underlying common stock at the point of vesting which ranged from $1.51 to $2.65 per share.

2019 Activity

A total of 250,000 shares of common stock were reserved in February 2018 as a result of a consulting agreement for investor relations services executed in February 2018. Under the agreement, 50,000 shares of common stock were awarded during the year ended September 30, 2019 subject to time-based vesting conditions. The compensation expense related to the vested common shares was included in the total stock-based compensation expense referenced above which totaled $115,000 during the year ended September 30, 2019. The expense was based on the fair value of the underlying common stock at the point of vesting which, on a weighted average basis, was $2.30 per share during the year ended September 30, 2019. The underlying stock price used in the analysis was on a non-marketable basis and was according to the market approach, considering both the traded price and forward multiples from guideline public companies, using allocation and marketability-discount methodologies. As of November 2018, all shares under the February 2018 share reserve were issued from the Company's authorized but unissued shares, but were not eligible to be issued under the 2016 or 2017 Equity Incentive Plan reserves.

In addition, the Company previously had formal obligations to issue future common stock options relating to several consulting agreements. A total of 38,874 stock options were granted in May 2019 related to those consulting agreements. The corresponding stock-based compensation expense related to the stock-based awards in the amount of $27,543 was included in research and development expense in the accompanying statements of operations.

General

As of September 30, 2020, 1,839,400 shares were available for future issuance on a combined basis under the 2016 and 2017 Equity Incentive Plans. Unrecognized stock-based compensation was $845,273 as of September 30, 2020. The unrecognized share-based expense is expected to be recognized over a weighted average period of 2.0 years.