NOTE 10 - STOCKHOLDERS' EQUITY

Common Stock Issuances

During the year ended November 30, 2020, the Company issued 20,000 common shares to option holders who exercised options for $41,000.  During the year ended November 30, 2019, the Company issued 2,500 common shares to option holders who exercised options for $5,700.  

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, 2020, and November 30, 2019, there were 305,000 and 325,000 options issued, but not yet exercised, under the 2006 Plan, respectively.  As of November 30, 2020, there were 0 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.  In October 2019, the Board of Directors approved amendments to the plan, subject to ratification by the stockholders, which occurred at the Company’s 2019 Annual Meeting of Stockholders on November 21, 2019.  As of November 30, 2020, there were 868,443 service-based options issued, 129,729 service-based restricted common shares granted, 530,851 performance-based and 116,218 market-based restricted common shares granted under the 2012 Plan.  As of November 30, 2019, there were 763,274 service-based options issued, 129,729 service-based restricted common shares granted, 530,851 performance-based and 116,218 market-based restricted common shares granted under the 2012 Plan.  As of November 30, 2020, there were 562,310 shares available for future issuance under the 2012 Plan.  

The Company granted 1,500 options to an optionee during the second fiscal quarter of 2019 as approved by the Board of Directors.  These options were not issued under either the 2006 or 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 based upon historical exercise data.  Expected dividends are based on the historical trend of the Company not issuing dividends.

There were 105,169 and 143,409 options granted during the twelve months ended November 30, 2020 and November 30, 2019, respectively.

Variables used to determine the fair value of the options granted for the years ended November 30, 2020 and November 30, 2019 are as follows:

Stock option activity for options with only service-based vesting conditions for the year ended November 30, 2020, was as follows:

The weighted average grant date fair value of options granted during the years ended November 30, 2020 and November 30, 2019 was $4.66 and $5.02, 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, 2020 or November 30, 2019, 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, 2020 and related price and contractual life information are as follows:

A summary of the status of the Company’s non-vested options as of November 30, 2020, and changes during the fiscal year then ended, is presented below:

As of November 30, 2020, there was approximately $352,000 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 2.12 years as of November 30, 2020.  The total fair value of options vested during the fiscal year ended November 30, 2020 was approximately $644,000.  

During the second fiscal quarter of 2018, the Company entered into Amended and Restated Employment Agreements (“2018 Employment Agreements”) with each of the Company’s Co-CEOs. Per the Employment Agreements, each of the Co-CEOs is to receive base grant equity awards in the form of qualified stock options of the Company’s common stock.  As of December 20, 2019, David Portnoy and Mark Portnoy were granted 23,636 and 20,000 stock options of the Company’s common stock, respectively. The options were issued under the Company’s 2012 Stock Plan and will vest 1/3 upon grant, 1/3 on December 1, 2020 and the remaining 1/3 on November 30, 2021.  The fair value of the options that vested through the twelve months ended November 30, 2020 was approximately $119,000 and is reflected as selling, general and administrative expenses in the accompanying consolidated statement of comprehensive income.  As of November 30, 2020, there was approximately $101,000 of total unrecognized compensation cost related to the non-vested options of common stock and these will continue to vest as notated above and per the 2018 Employment Agreements through November 30, 2021.

Performance and market-based vesting condition options

Per the 2018 Employment Agreements, based upon certain performance criteria, the Company shall grant David Portnoy and Mark Portnoy a percentage of up to 47,273 and 40,000, respectively, of qualified stock options of the Company’s common stock.  For market-based vesting condition options, accounting principles do not require that the market condition be met in order for the compensation cost to be recognized.  Fair value of these options has been determined using a Monte Carlo valuation approach.  During fiscal 2019, 15,756 of qualified stock options were forfeited as certain market conditions were not met by the end of the requisite service period. The fair value of these options as of November 30, 2019 was approximately $182,000 and is reflected as selling, general and administrative expenses in the accompanying consolidated statement of comprehensive income.  There were no market-based vesting condition options for the twelve months ended November 30, 2020.  For performance-based vesting condition options, the Company estimates the fair value of qualified stock options that met certain performance targets by the end of the fiscal 2018 requisite service period using a Black-Scholes valuation model.  As of November 30, 2019, the Company granted David Portnoy and Mark Portnoy 26,243 and 22,222, respectively, of non-qualified stock options of the Company’s common stock based upon certain performance criteria met by the end of the fiscal 2018 service period and per the 2018 Employment Agreements.  These options were issued under the Company’s 2012 Stock Plan and will vest 1/3 upon date of grant, 1/3 on December 1, 2019 and 1/3 on November 30, 2020.  The fair value of these options as of November 30, 2020 was approximately $172,000 and is reflected as selling, general and administrative expenses in the accompanying consolidated statements of comprehensive income.  As of November 30, 2020, there was approximately $0 of total unrecognized compensation cost related to the non-vested options of common stock.

On May 18, 2018, the Company entered into an Amendment Agreement (the “Amendment Agreement”), effective December 1, 2017, amending certain terms of Oleg Mikulinsky’s Employment Agreement dated March 5, 2012, as previously amended.  Per the Amendment Agreement, based upon certain performance criteria, the Company shall grant Oleg Mikulinsky a percentage of up to 8,000 of qualified stock options of the Company’s common stock.  For market-based vesting condition options, accounting principles do not require that the market condition be met in order for the compensation cost to be recognized.  Fair value of these options has been determined using a Monte Carlo valuation approach.  During fiscal 2019, 2,666 of qualified stock options were forfeited as certain market conditions were not met by the end of the requisite service period.  The fair value of these options as of November 30, 2019 was approximately $19,200 and is reflected as selling, general and administrative expenses in the accompanying consolidated statement of comprehensive income.  There were no market-based vesting condition options for the twelve months ended November 30, 2020.  For performance-based vesting condition options, the Company estimated the fair value of the qualified stock options that met certain performance targets by the end of the fiscal 2018 requisite service period using a Black-Scholes valuation model.  As of September 4, 2019, the Company granted Oleg Mikulinsky 4,444 of qualified stock options of the Company’s common stock based upon certain performance criteria met by the end of the fiscal 2018 service period and the per the Amendment Agreement.  These options were issued under the Company’s 2012 Stock Plan and will vest 1/3 upon date of grant, 1/3 on December 1, 2019 and 1/3 on November 30, 2020.  The fair value of these options as of November 30, 2020 was approximately $15,000 and is reflected as selling, general and administrative expenses in the accompanying consolidated statements of comprehensive income.  As of February 27, 2020, the Company granted Oleg Mikulinsky 1,333 of qualified stock options of the Company’s common stock based upon certain performance criteria met by the end of the fiscal 2019 service period and per the Amendment Agreement.  These options were issued under the Company’s 2012 Stock Plan and will vest 1/3 upon date of grant, 1/3 on December 1, 2020 and 1/3 on November 30, 2021.  The fair value of these options as of November 30, 2020 was $2,600 and is reflected as selling, general and administrative expenses in the accompanying consolidated statement of comprehensive income.  As of November 30, 2020, there was approximately $3,000 of total unrecognized compensation cost related to the non-vested options of common stock.

Restricted common shares

Based upon performance measures being attained during prior fiscal years, David Portnoy and Mark Portnoy earned 304,946 and 265,172 shares of common stock, respectively, pursuant to their employment agreements, as amended. Pursuant to the terms of the Employment Agreements, the Co-CEOs each opted to receive a lump sum cash payment in lieu of 30,000 shares of earned common stock which amounted to approximately $444,000 each paid in fiscal 2018.  For the fiscal year ended November 30, 2019, David Portnoy and Mark Portnoy surrendered 157,472 and 134,977 common shares, respectively, for cash which amounted to $534,917 and $457,327, respectively, in 2019, in conjunction with shareholder approval of the Company’s incentive Plans.

Based upon performance measures being attained during prior fiscal years, Oleg Mikulinsky was granted 34,349 shares of common stock pursuant to his employment agreement, as amended.