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Note 10 - Stock-based Compensation

12 Months Ended

Aug. 31, 2021

Share-based Payment Arrangement [Text Block]

10. STOCK-BASED COMPENSATION

The Company has three stock-based compensation plans under which stock options or other stock-based awards have been granted: the Northern Technologies International Corporation Amended and Restated 2019 Stock Incentive Plan (the 2019 Plan), the Northern Technologies International Corporation Amended and Restated 2007 Stock Incentive Plan (the 2007 Plan) and the Northern Technologies International Corporation Employee Stock Purchase Plan (the ESPP). The 2019 Plan replaced the 2007 Plan with respect to future grants; and, therefore, no further awards may be made under the 2007 Plan. The Compensation Committee of the Board of Directors and the Board of Directors administer these plans.

The 2019 Plan provides for the grant of incentive stock options, non-statutory stock options, stock appreciation rights, restricted stock, stock unit awards, performance awards, and stock bonuses to eligible recipients to enable the Company and its subsidiaries to attract and retain qualified individuals through opportunities for equity participation in the Company and to reward those individuals who contribute to the achievement of the Company’s economic objectives. On January 15, 2021, the Company’s stockholders approved certain amendments to the 2019 Plan, including an increase in the number of shares of common stock available for issuance under the plan by an additional 800,000 shares. Subject to adjustment as provided in the 2019 Plan, up to a maximum of 1,600,000 shares of the Company’s common stock are issuable under the 2019 Plan. Options granted generally have a term of ten years and become exercisable over a one- or three- year period beginning on the one-year anniversary of the date of grant. Options are granted at per share exercise prices equal to the market value of the Company’s common stock on the date of grant. The Company issues new shares upon the exercise of options. During the fiscal years ended August 31, 2021 and 2020, the Company granted stock options under the 2019 Plan to purchase an aggregate of 419,874 and 300,770 shares of its common stock to various employees and directors, respectively. As of August 31, 2021, 879,356 shares of common stock remained available under the 2019 Plan.

The maximum number of shares of common stock of the Company available for issuance under the ESPP is 200,000 shares, subject to adjustment as provided in the ESPP. The ESPP provides for six-month offering periods beginning on September 1 and March 1 of each year. The purchase price of the shares is 90% of the lower of the fair market value of common stock at the beginning or end of the offering period. This discount may not exceed the maximum discount rate permitted for plans of this type under Section 423 of the Internal Revenue Code of 1986, as amended. The ESPP is compensatory for financial reporting purposes. The Company issued 5,225 and 2,754 shares on March 1, 2021 and 2020, respectively, and 4,646 and 3,597 shares on September 1, 2020 and 2019, respectively, under the ESPP. As of August 31, 2021, 74,822 shares of common stock remained available for sale under the ESPP.

The fair value of option grants is determined at the date of grant using the Black-Scholes option pricing model with the assumptions listed below. The volatility factor used in the Black-Scholes option pricing model is based on historical stock price fluctuations, and the risk-free interest rate is based on U.S. treasury rates appropriate for the expected term. Dividend yield and expected volatility are estimated using historical amounts that are anticipated to be consistent with current values. Expected life of the option is based on the life of the option agreements. Based on these valuations, the Company recognized compensation expense of $664,174 and $1,337,774 during fiscal 2021 and fiscal 2020, respectively, related to the options that vested during such time. As of August 31, 2021, the total compensation cost for non-vested options not yet recognized on the Company’s consolidated statements of operations was $666,667, which is expected to be recognized during fiscal 2022 and fiscal 2023, based on outstanding options as of August 31, 2021. Future option grants will impact the compensation expense recognized. Stock-based compensation expense is included in general and administrative expense on the consolidated statements of operations.

The fair value of each option grant is estimated on the grant date using the Black-Scholes option pricing model with the following assumptions and results for the grants:

	Fiscal Year 2021			Fiscal Year 2020
Dividend yield		1.65	%		2.41	%
Expected volatility		45.4	%		45.2	%
Expected life of option (in years)		10			10
Weighted average risk-free interest rate		0.77	%		1.40	%

Stock option activity during the periods indicated was as follows:

	Number of Shares (#)			Weighted Average Exercise Price		Aggregate Intrinsic Value
Outstanding at August 31, 2019		839,173		$	9.13
Options granted		300,770			10.87
Options exercised		(11,975	)		5.13
Options terminated		—			—

Outstanding at August 31, 2020		1,127,968		$	9.63
Options granted		419,874			8.24
Options exercised		(77,645	)		8.18
Options terminated		(43,546	)		9.63

Outstanding at August 31, 2021		1,426,651		$	9.30	$	10,514,418

Exercisable at August 31, 2021		1,022,802		$	9.72	$	7,108,474

The weighted average per share fair value of options granted during fiscal 2021 and fiscal 2020 was $8.24 and $10.87, respectively. The weighted average remaining contractual life of the options outstanding and exercisable as of August 31, 2021 was 6.20 years and 5.09 years, respectively.