Annual report pursuant to Section 13 and 15(d)

SHAREHOLDERS' EQUITY

v3.20.2
SHAREHOLDERS' EQUITY
 12 Months Ended
Aug. 31, 2020
SHAREHOLDERS' EQUITY [Abstract]  
SHAREHOLDERS' EQUITY
NOTE 8 – SHAREHOLDERS’ EQUITY

Preferred Stock

The Company’s non-voting Series B Preferred Stock has a preference in liquidation of $1.00 per share less any dividends previously paid. Additionally, the Series B Preferred Stock is redeemable at the discretion of the Company for $1.00 per share less any dividends previously paid. In the event the proceeds from the sale or disposition of Export Water rights exceed $36,026,232, the Series B Preferred Shareholders will receive the next $432,513 of proceeds in the form of a dividend. The terms of the Series B Preferred Stock prohibit payment of dividends on common stock unless all dividends accrued on the Series B Preferred Stock have been paid.

Equity Compensation Plan

The Company maintains the 2014 Equity Incentive Plan (the “2014 Equity Plan”), which was approved by shareholders in January 2014 and became effective April 12, 2014. Executives, eligible employees, consultants, and non-employee directors are eligible to receive options and stock grants pursuant to the 2014 Equity Plan. Pursuant to the 2014 Equity Plan, options to purchase shares of stock and restricted stock awards can be granted with exercise prices, vesting conditions and other performance criteria determined by the Compensation Committee of the Company’s board of directors. The Company has reserved 1.6 million shares of common stock for issuance under the 2014 Equity Plan. As of August 31, 2020, stock awards and awards to purchase 511,500 shares of the Company’s common stock have been made under the 2014 Equity Plan. As of August 31, 2020 and 2019, there were 1,088,500 and 1,230,500 shares available for grant under the 2014 Equity Plan. Prior to the effective date of the 2014 Equity Plan, the Company granted stock awards to eligible participants under its 2004 Incentive Plan (the “2004 Incentive Plan”), which expired April 11, 2014. No additional awards may be granted pursuant to the 2004 Incentive Plan; however, awards outstanding as of April 11, 2014, will continue to vest and expire and may be exercised in accordance with the terms of the 2004 Incentive Plan.

The Company estimates the fair value of share-based payment awards on the date of grant using the Black-Scholes option-pricing model (“Black-Scholes model”). Using the Black-Scholes model, the value of the portion of the award that is ultimately expected to vest is recognized as a period expense over the requisite service period in the consolidated statements of operations and comprehensive income (loss). Option forfeitures are to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The Company does not expect any forfeiture of its option grants, and therefore, the compensation expense has not been reduced for estimated forfeitures. For the years ended August 31,2020 and 2019, 6,500 options and zero options expired. The Company attributes the value of share-based compensation to expense using the straight-line single option method for all options granted.

The Company’s determination of the estimated fair value of share-based payment awards on the date of grant is affected by the following variables and assumptions:


 ●
The grant date exercise price – is the closing market price of the Company’s common stock on the date of grant;

●
Estimated option lives – based on historical experience with existing option holders;

●
Estimated dividend rates – based on historical and anticipated dividends over the life of the option;

●
Life of the option – based on historical experience, option grants have lives of between five and 10 years;

●
Risk-free interest rates – with maturities that approximate the expected life of the options granted;

●
Calculated stock price volatility – calculated over the expected life of the options granted, which is calculated based on the weekly closing price of the Company’s common stock over a period equal to the expected life of the option; and

●
Option exercise behaviors – based on actual and projected employee stock option exercises.

In fiscal 2020, the Company granted 80,000 stock options to employees with weighted-average grant-date fair values of $4.21, and three-year vesting terms which expire ten years from the grant date. In fiscal 2020, the Company granted 50,000 stock options to an executive officer with a weighted-average grant-date fair value of $4.16, a three-year vesting term and an expiration date of ten years from the grant date. In addition, the six non-employee Board members were each granted 2,000 unrestricted stock grants. The fair market value of the unrestricted shares for share-based compensation expensing is equal to the closing price of the Company’s common stock on the date of grant of $12.45. Stock-based compensation expense includes $149,400 of expense related to these unrestricted stock grants. The unrestricted stock grants were fully expensed at the date of the grant because no vesting requirements exist for unrestricted stock grants. There was no stock-based compensation expense related to unrestricted stock grants for fiscal 2019.

In fiscal 2019, the Company granted 50,000 stock options to an executive officer with a weighted-average grant-date fair value of $5.06, a three-year vesting term and an expiration date of ten years from the grant date. In fiscal 2019, the Company granted its non-employee directors a combined 32,500 stock options with a weighted-average grant-date fair value of $126,700, a one year vesting term and an expiration date of ten years from the grant date.

The variable assumptions used in the fair value calculations using the Black-Scholes model are as follows:

   
For the Fiscal Years Ended August 31,
 
   
2020
    
2019
  
Expected term (years)
    
6.00
      
5.80
  
Risk-free interest rate
    
1.71
%
    
2.93
%
Expected volatility
    
39.32
%
    
41.83
%
Expected dividend yield
    
0
%
    
0
%
Weighted average grant-date fair value
  
$
4.19
    
$
4.60
  

During the fiscal years ended August 31, 2020 and 2019, 17,500 and 62,500 options were exercised.

The following table summarizes the combined stock option activity for the 2004 Incentive Plan and 2014 Equity Plan for the year ended August 31, 2020:

   
Number
of Options
    
Weighted Average
Exercise Price
    
Weighted Average
Remaining
Contractual Term
    
Approximate
Aggregate
Intrinsic Value
  
Outstanding at August 31, 2018
    
535,500
    
$
5.31
      
6.04
    
$
3,180,990
  
Granted
    
82,500
    
$
10.48
                  
Exercised
    
(62,500
)
  
$
3.09
                  
Forfeited or expired
    
—
    
$
—
                  
Outstanding at August 31, 2019
   
555,500
    
$
6.33
      
6.27
    
$
2,527,590
  
Granted
    
130,000
    
$
10.41
                  
Exercised
    
(17,500
)
  
$
2.81
                  
Forfeited or expired
    
(6,500
)
  
$
6.08
                  
Outstanding at August 31, 2020
    
661,500
    
$
7.23
      
6.17
    
$
1,831,075
  
                                 
Options exercisable at August 31, 2020
   
481,501
    
$
6.08
      
5.22
    
$
1,795,076
  

The following table summarizes the activity and value of non-vested options as of and for the year ended August 31, 2020:

   
Number
of Options
    
Weighted Average
Grant Date
Fair Value
  
Non-vested options outstanding at August 31, 2019
   
152,499
    
$
4.03
  
Granted
    
130,000
      
4.19
  
Vested
    
(102,500
)
    
3.75
  
Forfeited
    
—
      
—
  
Non-vested options outstanding at August 31, 2020
   
179,999
    
$
4.31
  

All non-vested options are expected to vest. For the years ended August 31, 2020 and 2019, the total fair value of options vested was $384,400 and $297,100. For the years ended August 31, 2020 and 2019, the weighted-average grant-date fair value of options granted was $4.19 and $4.60.

For the years ended August 31, 2020 and 2019, share-based compensation expense was $517,000 and $336,200.

As of August 31, 2020, the Company had unrecognized share-based compensation expenses totaling $461,100 relating to non-vested options that are expected to vest. The weighted average period over which these options are expected to vest is 1.7 years. The Company has not recorded any excess tax benefits to additional paid-in capital.

Warrants

As of August 31, 2020, the Company had outstanding warrants to purchase 92 shares of common stock at an exercise price of $1.80 per share. These warrants expire six months from the earlier of:


 •
The date that all the Export Water is sold or otherwise disposed of,

•
The date that the CAA is terminated with respect to the original holder of the warrant, or

•
The date on which the Company makes the final payment pursuant to Section 2.1(r) of the CAA.

No warrants were exercised during fiscal 2020 and 2019.