NOTE 11 – STOCKHOLDERS’ EQUITY.

Common Stock Issuances

During the year ended November 30, 2017, the Company issued 33,031 common shares to option holders who exercised options for $64,696. During the year ended November 30, 2016, the Company issued 23,399 common shares to option holders who exercised options for $40,340.

Employee Stock Incentive Plan

The Company maintains the 2006 Stock Incentive Plan (the “2006 Plan”) under which it has reserved 1,000,000 shares of the Company’s common stock for issuance pursuant to stock options, restricted stock, stock-appreciation rights (commonly referred to as “SARs”) and stock awards (i.e. performance options to purchase shares and performance units). As of November 30, 2017, and November 30, 2016, there were 457,250 and 572,281 options issued, but not yet exercised, under the 2006 Plan, respectively. As of November 30, 2017, there were 308,929 shares available for future issuance under the 2006 Plan.

The Company maintains the 2012 Equity Incentive Plan (the “2012 Plan”) which became effective December 1, 2011 as approved by the Board of Directors and approved by the stockholders at the 2012 Annual Meeting on July 10, 2012. The 2012 Plan originally reserved 1,500,000 shares of the Company’s common stock for issuance pursuant to stock options, restricted stock, SARs, and other stock awards (i.e. performance shares and performance units). In May 2012, the Board of Directors approved an amendment to the 2012 Plan to increase the number of shares of the Company’s common stock reserved for issuance to 2,500,000 shares. As of November 30, 2017, there were 569,729 service-based options issued, 129,729 service-based restricted common shares granted, 825,221 performance-based and 116,240 market-based restricted common shares granted under the 2012 Plan. As of November 30, 2016, there were 569,729 service-based options issued, 129,729 service-based restricted common shares granted, 630,970 performance-based and 116,240 market-based restricted common shares granted under the 2012 Plan. As of November 30, 2017, there were 859,081 shares available for future issuance under the 2012 Plan.

Service-based vesting condition options

The fair value of each option award is estimated on the date of the grant using the Black-Scholes valuation model that uses the assumptions noted in the following table. Expected volatility is based on the historical volatility of the Company’s stock over the most recent period commensurate with the expected life of the Company’s stock options. The Company uses historical data to estimate option exercise and employee termination within the valuation model. The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant. The expected term of options granted to employees is calculated, in accordance with the “simplified method” for “plain vanilla” stock options allowed under GAAP. Expected dividends are based on the historical trend of the Company not issuing dividends.

Variables used to determine the fair value of the options granted for the years ended November 30, 2017 and November 30, 2016 are as follows:

 

		2017				2016
Weighted average values:
Expected dividends			0	%			0	%
Expected volatility			52.07	%			66.39	%
Risk free interest rate			1.82	%			1.22	%
Expected life			5.0 years				5.6 years

 

Stock option activity for options with only service-based vesting conditions for the year ended November 30, 2017, was as follows:

 

		Options				Weighted Average Exercise Price				Weighted Average Remaining Contractual Term (Years)				Aggregate Intrinsic Value
Outstanding at November 30, 2016			1,142,010			$	2.36				4.99			$	2,157,112
Granted			25,000				6.95								27,750
Exercised			(33,031	)			1.96								108,349
Expired/forfeited			(107,000	)			2.19								628,280
Outstanding at November 30, 2017			1,026,979				2.50				4.48			$	5,706,107
Exercisable at November 30, 2017			987,811				2.41				4.34			$	5,580,178

The weighted average grant date fair value of options granted during the years ended November 30, 2017 and November 30, 2016 was $3.23 and $1.86, respectively.

The aggregate intrinsic value represents the total value of the difference between the Company’s closing stock price on the last trading day of the period and the exercise price of the options, multiplied by the number of in-the-money stock options that would have been received by the option holders had all option holders exercised their options on either November 30, 2017 or November 30, 2016, as applicable. The intrinsic value of the Company’s stock options changes based on the closing price of the Company’s stock.

Significant option groups outstanding and exercisable at November 30, 2017 and related price and contractual life information are as follows:

 

		Outstanding												Exercisable
Range of Exercise Prices		Outstanding				Weighted Average Remaining Contractual Life (Years)				Weighted Average Exercise Price				Outstanding				Weighted Average Exercise Price
$1.01 to $2.00			423,750				3.93			$	1.73				423,750			$	1.73
$2.01 to $3.00			351,000				2.81			$	2.68				351,000			$	2.68
$3.01 to $4.00			227,229				7.57			$	3.18				205,564			$	3.18
$6.01 to $7.00			25,000				9.34			$	6.95				7,497			$	7.00
			1,026,979				4.48			$	2.50				987,811			$	2.41

A summary of the status of the Company’s non-vested options as of November 30, 2017, and changes during the fiscal year then ended, is presented below:

 

		Options				Weighted Average Grant-Date Fair Value
Non-vested at November 30, 2016			97,406			$	1.84
Granted			25,000				3.23
Vested			(83,238	)			1.99
Forfeited			—				—
Non-vested at November 30, 2017			39,168			$	2.41

 

As of November 30, 2017, there was approximately $51,000 of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted under the 2006 Plan and the 2012 Plan. The cost is expected to be recognized over a weighted-average period of .78 years as of November 30, 2017. The total fair value of options vested during the fiscal year ended November 30, 2017 was approximately $166,000.

Performance and market-based vesting condition options

There were no performance-based or market-based vesting condition options granted during the fiscal years ended November 30, 2017 and November 30, 2016.

As of November 30, 2017 and November 30, 2016, there were no performance or market-based vesting condition options outstanding.

Restricted common shares

During the first quarter fiscal 2014, the Company entered into Amended and Restated Employment Agreements (“Employment Agreements”) with each of the Company’s Co-CEOs. Per the Employment Agreements, each of the Co-CEOs received base grant equity awards in the form of restricted shares of the Company’s common stock. As of December 1, 2013, David Portnoy and Mark Portnoy were granted 70,270 and 59,459 shares of the Company’s common stock, respectively. The shares were issued under the Company’s 2012 Stock Plan and vested 1/3 upon grant, 1/3 on December 1, 2014 and the remaining 1/3 on December 1, 2015. As of November 30, 2017 and November 30, 2016, these shares are fully vested and there was $0 of total unrecognized compensation cost related to these shares of restricted common stock.

The Employment Agreements also provide for the grant of restricted shares of the Company’s common stock based on certain performance measures being attained by each of the Company’s Co-CEOs. The Employment Agreements state if David Portnoy and Mark Portnoy are employed by the Company on November 30, 2014, then no later than February 15, 2015, the Company will grant up to 186,487 and 162,163 shares of restricted common shares, respectively, based on certain market and performance thresholds, as defined in the agreements. In addition, if David Portnoy and Mark Portnoy are employed by the Company on November 30, 2015, then no later than February 15, 2016, the Company will grant up to an additional 186,487 and 162,163 shares of restricted common shares, respectively, based on similar performance thresholds, as defined in the agreements.

As of November 30, 2015, certain market and performance thresholds were met during fiscal year 2015 and the Board agreed to grant David Portnoy and Mark Portnoy 118,117 and 102,711 shares of restricted common shares, respectively. The fair value of the shares with a grant date during the 2015 fiscal year was approximately $336,000. During fiscal year 2016, there was approximately $242,000 of total unrecognized compensation cost recognized as the Board granted certain subjective performance shares with a grant date during the 2016 fiscal year and these costs are reflected as selling, general and administrative expense in the accompanying consolidated statements of comprehensive income (loss) as of November 30, 2016.

As of April 15, 2016, the Company entered into Amended and Restated Employment Agreements (“Employment Agreements”) with each of the Company’s Co-CEOs. The Employment Agreements provide for the grant of shares of the Company’s common stock based on certain performance measures being attained by each of the Company’s Co-CEOs during fiscal year 2016. The Employment Agreements state if David Portnoy and Mark Portnoy are employed by the Company on

November 30, 2016, then no later than February 28, 2017, the Company will grant up to 186,487 and 162,163 shares of common stock. Based upon the performance measures being attained, the Company granted a total of 183,145 and 159,257 shares of common stock to David Portnoy and Mark Portnoy, respectively. The fair value of the shares to be granted is approximately $1,252,000 and is reflected as selling, general and administrative expense in the accompanying consolidated statements of comprehensive income (loss) for the year ended November 30, 2016. There was $0 of total unrecognized compensation cost as of November 30, 2017.

As of April 18, 2016, the Company entered into a second Amendment Agreement (the “Amendment”), with the Company’s CIO Oleg Mikulinsky effective December 1, 2015, amending certain terms of the Amendment Agreement dated May 1, 2013 and Mikulinsky Employment Agreement dated March 5, 2012. The Amendment provides for the grant of shares of the Company’s common stock based on certain performance measures being attained by the Company during fiscal year 2016. The Amendment states if Executive is employed by the Company on November 30, 2016, then no later than February 28, 2017, the Company will grant Executive up to 20,000 shares of restricted stock based on performance as set forth in the Amendment. Based upon performance measures being attained, the Company granted a total of 19,620 shares of common stock to Oleg Mikulinksy. The fair value of the shares granted is approximately $78,000, and $32,000 is reflected as selling, general and administrative expense in the accompanying consolidated statements of comprehensive income (loss) for the year ended November 30, 2016. There remaining $46,000 was reflected as selling, general and administrative expense in the accompanying consolidated statements of comprehensive income (loss) for the year ended November 30, 2017. There is $0 of total unrecognized compensation cost as of November 30, 2017.

As of April 15, 2016, the Company entered into Amended and Restated Employment Agreements (“Employment Agreements”) with each of the Company’s Co-CEOs. The Employment Agreements provide for the grant of shares of the Company’s common stock based on certain performance measures being attained by each of the Company’s Co-CEOs during fiscal year 2017. The Employment Agreements state if David Portnoy and Mark Portnoy are employed by the Company on November 30, 2017, then no later than February 28, 2018, the Company will grant up to 186,487 and 162,163 shares of common stock. Based upon the performance measures being attained, the Company will grant a total of 121,801 and 105,915 shares of common stock to David Portnoy and Mark Portnoy, respectively. The fair value of the shares to be granted is approximately $1,200,000, and $704,000 is reflected as selling, general and administrative expense in the accompanying consolidated statements of comprehensive income (loss) for the year ended November 30, 2017. There is $496,000 of total unrecognized compensation cost as of November 30, 2017 that will be recognized in fiscal year 2018.

As of April 18, 2016, the Company entered into a second Amendment Agreement (the “Amendment”), with the Company’s CIO Oleg Mikulinsky effective December 1, 2015, amending certain terms of the Amendment Agreement dated May 1, 2013 and Mikulinsky Employment Agreement dated March 5, 2012. The Amendment provides for the grant of shares of the Company’s common stock based on certain performance measures being attained by the Company during fiscal year 2017. The Amendment states if Executive is employed by the Company on November 30, 2017, then no later than February 28, 2018, the Company will grant Executive up to 20,000 shares of restricted stock based on performance as set forth in the Amendment. Based upon performance measures being attained, the Company will grant a total of 11,396 shares of common stock to Oleg Mikulinksy. The fair value of the shares granted is approximately $80,000 and $40,000 is reflected as selling, general and administrative expense in the accompanying consolidated statements of comprehensive income (loss) for the year ended November 30, 2017. There was $40,000 of total unrecognized compensation cost as of November 30, 2017 that will be recognized in fiscal year 2018.

 

Preferred Stock Rights Plan

On November 26, 2014, the Board of Directors of the Company declared a dividend payable December 5, 2014 of one preferred share purchase right (a “Right”) for each share of common stock, par value $0.01 per share, of the Company (a “Common Share”) outstanding as of the close of business on December 5, 2014 (the “Record Date”) and authorized the issuance of one Right for each additional Common Share that becomes outstanding between the Record Date and the earliest of the close of business on the Distribution Date, the Redemption Date , and the close of business on the Final Expiration Date, and for certain additional Common Shares that become outstanding after the Distribution Date, such as upon the exercise of stock options or conversion or exchange of securities or notes.

Rights were to be issued pursuant to a Rights Agreement dated as of December 5, 2014 (the “Rights Agreement”), between the Company and Continental Stock and Transfer Trust, as Rights Agent (the “Rights Agent”). The Rights were not intended to prevent an acquisition of the Company that the Board of Directors of the Company considers favorable to and in the best interests of all shareholders of the Company. Rather, because the exercise of the Rights may cause substantial dilution to an Acquiring Person unless the Rights are redeemed by the Board of Directors before an acquisition transaction, the Rights Agreement ensures that the Board of Directors has the ability to negotiate with an Acquiring Person on behalf of unaffiliated shareholders.

The Rights Agreement were to expire on December 5, 2017, unless earlier redeemed, exchanged, terminated, or unless the expiration date is extended. Effective October 31, 2016, the Company terminated the Rights Agreement through an Amendment to Rights Agreement (“Rights Amendment”) which revised the termination date of the Rights Agreement. Pursuant to the Rights Amendment, the termination of the Rights Agreement was effective October 31, 2016.