Note 7 – Stockholders’ Equity

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 August 31, 2021, and November 30, 2020, there were 105,000 and 305,000 options issued, but not yet exercised, under the 2006 Plan, respectively.  As of August 31, 2021, 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 August 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 August 31, 2021, there were 463,143 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 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 August 31, 2021, there were 542,310 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 based upon historical exercise data.  Expected dividends are based on the historical trend of the Company not issuing dividends.

There were 0 and 20,000 options granted during the three and nine months ended August 31, 2021, respectively.

There were 7,000 and 51,969 options granted during the three and nine months ended August 31, 2020, respectively.

Variables used to determine the fair value of the options granted for the three and nine months ended August 31, 2021 and August 31, 2020, respectively, are as follows:

Stock option activity for options with only service-based vesting conditions for the nine months ended August 31, 2021, was as follows:

The weighted average grant date fair value of options granted during the nine months ended August 31, 2021 and August 31, 2020 was $4.56 and $4.94, 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 August 31, 2021 or November 30, 2020, as applicable.  The intrinsic value of the Company’s stock options changes based on the closing price of the Company’s stock.  

During the three and nine months ended August 31, 2021, the Company issued 84,632 and 574,300 common shares to option holders who exercised options for $0 and $1,066,000, respectively.

During the three and nine months ended August 31, 2020, the Company issued 0 and 20,000 common shares to option holders who exercised options for $0 and $41,000, respectively.

Significant option groups outstanding and exercisable at August 31, 2021 and related price and contractual life information are as follows:

A summary of the status of the Company’s non-vested options as of August 31, 2021, and changes during the nine months ended August 31, 2021, is presented below:

As of August 31, 2021, there was approximately $175,000 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 3.15 years as of August 31, 2021.  The total fair value of shares vested during the nine months ended August 31, 2021 was approximately $224,000.  

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 three and nine months ended August 31, 2021 was approximately $29,000 and $85,000, respectively, and is reflected as selling, general and administrative expenses in the accompanying consolidated statement of income. As of August 31, 2021, there was approximately $28,000 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.  There were no market-based vesting condition options for the nine months ended August 31, 2021 or August 31, 2020, respectively.  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 August 30, 2019, the Company granted David Portnoy and Mark Portnoy 26,243 and 22,222 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.  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 vested through the nine months ended August 31, 2021 and August 31, 2020 was approximately $0 and $121,000 and is reflected as selling, general and administrative expenses in the accompanying consolidated statements of income.  As of August 31, 2021, there was $0 of total unrecognized compensation cost as the options were fully vested.

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.  There were no market-based vesting condition options for the nine months ended August 31, 2021 and August 31, 2020,

respectively.  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 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 of these options that vested through the nine months ended August 31, 2021 and August 31, 2020 was approximately $200 and $10,000 and is reflected as selling, general and administrative expenses in the accompanying consolidated statement of 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 the options vested through the nine months ended August 31, 2021 and August 31, 2020 was $2,500 and $2,000, respectively, and is reflected as selling, general and administrative expenses in the accompanying consolidated statement of income.  As of August 31, 2021, there was approximately $800 of total unrecognized compensation cost related to the non-vested options of common stock.