Note 12 - Stock-based Compensation

12 Months Ended

Aug. 31, 2022

Notes to Financial Statements

Share-Based Payment Arrangement [Text Block]

12.         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 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 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. As of August 31, 2022, options to purchase an aggregate of 867,721 shares of the Company’s common stock were outstanding under the 2019 Plan and 704,516 shares of the Company’s common stock remain available for grant under the 2019 Plan. As of August 31, 2022, options to purchase an aggregate of 649,243 shares of the Company’s common stock were outstanding under the 2007 Plan.

The Company granted options to purchase an aggregate of 174,840 and 419,874 shares of its common stock during fiscal 2022 and 2021, respectively. 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 Company recognized compensation expense of $931,532 during fiscal 2022 and compensation expense of $664,174 during fiscal 2021 related to the options that vested during such time period. As of August 31, 2022, the total compensation cost for non-vested options not yet recognized in the Company’s consolidated statements of operations was $1,009,719. Stock-based compensation expense of $671,526 is expected during fiscal 2023 and $338,193 is expected to be recognized during fiscal 2024, based on outstanding options as of August 31, 2022. 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 2022			Fiscal Year 2021
Dividend yield		2.46	%		1.65	%
Expected volatility		45.2	%		45.4	%
Expected life of option (years)		10			10
Weighted average risk-free interest rate		3.30	%		0.77	%

Stock option activity during the periods indicated was as follows:

	Number of Shares (#)			Weighted Average Exercise Price		Aggregate Intrinsic Value
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
Options granted		174,840			16.97
Options exercised		(51,218	)		6.60
Options terminated		(5,546	)		18.23
Outstanding at August 31, 2022		1,544,727		$	10.23	$	4,151,365
Exercisable at August 31, 2022		1,156,211		$	9.58	$	3,394,957

The weighted average per share fair value of options granted during fiscal 2022 and fiscal 2021 was $16.97 and $8.24, respectively. The weighted average remaining contractual life of the options outstanding as of August 31, 2022 and 2021 was 5.76 years and 6.20 years, respectively.