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Stock-Based Compensation

12 Months Ended

Sep. 30, 2021

Share-Based Payment Arrangement [Abstract]

Stock-Based Compensation

NOTE 9 - Stock-Based Compensation

During the years ended September 30, 2021 and 2020, stock-based expense related to the stock options, restricted stock units and stock awards was included in selling, general and administrative and research and development costs as follows in the accompanying statements of operations:

		2021				2020
Selling, general and administrative		$	1,550,841			$	1,623,629
Research and development			242,358				212,341
Total stock-based compensation expense		$	1,793,199			$	1,835,970

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 764,089 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, 2021 and 2020, 484,622 and 428,930 shares were added to the 2017 Plan, respectively, as a result of the evergreen provision.

Stock Options

During the years ended September 30, 2021 and 2020, 703,117 and 334,731 stock options were granted to employees, directors and consultants, respectively, with a weighted average grant date fair value of $3.01 and $3.03 per share, respectively. The options granted have vesting periods ranging from being immediate to four years. All options expire ten years from the date of grant. The total expense for the years ended September 30, 2021 and 2020 related to the stock options was $983,301 and $798,242, respectively.

The following table summarizes the Company’s stock option plan activity for the years ended September 30, 2021 and 2020 as follows:

		Number of Options				Weighted Average Exercise Price				Weighted- Average Remaining Contractual Term (years)				Aggregate Intrinsic Value(1)
Outstanding at September 30, 2019			281,956			$	5.46				9.0			$	343,406
Granted			334,731			$	6.18				—				—
Exercised			(25,515	)		$	0.12				—				—
Forfeited/Cancelled			(98,330	)		$	5.91				—				—
Outstanding at September 30, 2020			492,842			$	6.13				8.8			$	96,088
Granted			703,117			$	5.83				—				—
Exercised			(1,538	)		$	6.60				—				—
Forfeited/Cancelled			(71,861	)		$	6.85				—				—
Outstanding at September 30, 2021			1,122,560			$	5.89				8.8			$	127,339
Vested and exercisable at September 30, 2021			481,047			$	5.89				8.2			$	311,388

(1)

The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying options and the fair value of our common stock as of September 30, 2021 and 2020 of $3.95 and $3.86 per share, respectively. As of September 30, 2021 and 2020, 1,055,376 and 467,327 outstanding options, respectively, had 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:

		2021				2020
Expected stock price volatility			55.9	%			53.1	%
Expected life of options (years)			6.0				5.6
Expected dividend yield			0	%			0	%
Risk free interest rate			0.6	%			1.4	%

During the year ended September 30, 2021 and 2020, 280,557 and 198,191 stock options vested, respectively.

Restricted Stock Units

A summary of restricted stock unit (“RSU”) activity is as follows for the years ended September 30, 2021 and 2020:

		Number of
		Shares
Non-vested at September 30, 2019			10,503
Granted			78,323
Forfeited			(2,335	)
Vested			(59,793	)
Non-vested at September 30, 2020			26,698
Granted			13,776
Vested			(29,090	)
Non-vested at September 30, 2021			11,384

During the years ended September 30, 2021 and 2020, 13,776 and 78,323 RSUs were granted to members of the Company’s board of directors and consultants that vest over a period ranging from an immediate to a two year period, with a grant date fair value of $7.26 and $6.27 per unit, respectively. During the years ended September 30, 2021 and 2020, 29,090 and 59,793 RSUs vested, respectively. The total expense for the years ended September 30, 2021 and 2020 related to the RSU’s was $163,988 and $396,012, respectively. The number of RSUs forfeited during the years ended September 30, 2021 and 2020 was zero and 2,335, respectively.

Other Stock-Based Awards

2021 Activity

In April 2021, two consulting agreements were executed whereby a total of 62,659 shares of common stock were issued and vested as of September 30, 2021.

In July 2021, two consulting agreements were executed whereby a total of 11,668 shares of common stock were issued and vested as of September 30, 2021.

2020 Activity

In October 2019, two consulting agreements were executed whereby up to 38,334 shares of common stock were issued and vested as of September 30, 2020. 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 11,667 shares in exchange for consulting services of which 11,667 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 30,000 shares of common stock were issued and vested as of September 30, 2020 under this agreement. In addition, on May 21, 2020, 22,195 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 40,000 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, 2021 and 2020, 33,333 and 6,667 shares vested under this agreement, respectively.

Compensation expense related to the stock awards granted under the consulting agreements and to the former 2019 Paulson Note holder referenced above amounted to $645,910 and $641,716 for the years ended September 30, 2021 and 2020, respectively, and was included in stock-based compensation expense. The expense recognition related to the grants was based on the fair value of the underlying common stock at the point of vesting which ranged from $4.53 to $7.95 per share.

General

As of September 30, 2021, 389,709 shares were available for future issuance on a combined basis under the 2016 and 2017 Equity Incentive Plans. Unrecognized stock-based compensation was $1.7 million as of September 30, 2021. The unrecognized share-based expense is expected to be recognized over a weighted average period of 2.9 years.