Stock Based Compensation

12 Months Ended

May 31, 2020

Share-based Payment Arrangement [Abstract]

Stock Based Compensation

Stock-based compensation includes expense charges for all stock-based awards to employees and directors granted under the Company’s stock option plan. Stock-based compensation recognized during the period is based on the portion of the grant date fair value of the stock-based award that will vest during the period, adjusted for expected forfeitures. Compensation cost for all stock-based awards is recognized using the straight-line method.

Stock Options

The Company uses the Black-Scholes option pricing model as its method of valuation for stock-based awards. The Black-Scholes option pricing model requires the input of highly subjective assumptions, and other reasonable assumptions could provide differing results. These variables include, but are not limited to:

· Risk-Free Interest Rate. The Company bases the risk-free interest rate on the implied yield currently available on U.S. Treasury issues with an equivalent remaining term approximately equal to the expected life of the award.

· Expected Life. The expected life of awards granted represents the period of time that they are expected to be outstanding. The Company determines the expected life based on historical experience with similar awards, giving consideration to the contractual terms, vesting schedules and pre-vesting and post-vesting forfeitures.

· Expected Volatility. The Company estimates the volatility of its common stock at the date of grant based on the historical volatility of its common stock. The volatility factor the Company uses is based on its historical stock prices over the most recent period commensurate with the estimated expected life of the award. These historical periods may exclude portions of time when unusual transactions occurred.

· Expected Dividend Yield. The Company does not anticipate paying any cash dividends in the foreseeable future. Consequently, the Company uses an expected dividend yield of 0.

· Expected Forfeitures. The Company uses relevant historical data to estimate pre-vesting option forfeitures. The Company records stock-based compensation only for those awards that are expected to vest.

The Company has computed, to determine stock-based compensation expense recognized for the years ended May 31, 2020 and 2019, the value of all stock options granted using the Black-Scholes option pricing model using the following assumptions:

	Year Ended May 31,
	2020		2019
Average risk-free interest rate		N/A		3.1%
Expected life		N/A		6.0 years
Expected volatility		N/A		46.3%

There were no options granted during the year ended May 31, 2020 and the Company had outstanding stock options to purchase 22,500 shares of Common Stock as of May 31, 2020. All outstanding options are fully vested and exercisable with a weighted average exercise price of $1.70. As all options outstanding as of May 31, 2020 were fully vested, the Company did not record any additional stock-based compensation expense during the year ending May 31, 2020.

Outstanding Options			Exercisable Options
Number of Shares	Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (yrs)	Weighted Average Exercise Price
22,500	$	1.70	6.9	$	1.70

Options granted, exercised, canceled and expired under the Company’s stock-based compensation plans during the years ended May 31, 2020 and 2019 are summarized as follows:

	Number of Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)		Aggregate Intrinsic Value
Options outstanding and exercisable - May 31, 2018		318,332		$	2.36		6.8	$	751,264
Options granted		15,000			2.45
Options exercised		(38,333	)		1.70
Options forfeited/canceled		(40,833	)		2.66
Options outstanding and exercisable - May 31, 2019		254,166		$	2.41		5.8	$	612,540
Options granted		-
Options exercised		(69,166	)		1.82
Options forfeited/canceled		(162,500	)		2.77
Options outstanding and exercisable - May 31, 2020		22,500		$	1.70		6.9	$	38,250

Restricted Stock Units

Service-based and market-based restricted stock units are granted to key employees and members of the Company’s Board of Directors. Service-based restricted stock units are valued at the stock price at date of grant and amortized on a straight-line over the vesting period. Service-based restricted stock units generally fully vest on the first anniversary date of the award. Market-based restricted stock units are contingent on continued service and vest based on the 15-day average closing price of the Company’s Common Stock equal or exceeding certain targets established by the Compensation Committee of the Board of Directors.

The lattice model utilizes multiple input variables that determine the probability of satisfying the market conditions stipulated in the award and calculates the fair value of the market-based restricted stock units. The Company used the following assumptions in determining the fair value of market based restricted stock units:

	Year Ended May 31,
	2020		2019
Expected stock price volatility		54.1%		50.1% - 57.5%
Expected dividend yield		0%		0%
Average risk-free interest rate		2.3%		2.55% - 2.98%

The expected stock price volatility for each grant is based on the historical volatility of the Company’s stock for a period equivalent to the derived service period of each grant. The expected dividend yield is based on annual expected dividend payments. The average risk-free interest rate is based on the treasury yield rates as of the date of grant for a period equivalent to the derived service period of each grant. The fair value of each restricted stock unit is amortized over the requisite or derived service period, which is up to five years. The restricted stock units granted during the year ended May 31, 2020 have a grant date fair value of $218,379.

For the year ended May 31, 2020, six tranches, consisting of 18,000 units, of market-based restricted stock units were granted. The fair value of the on the grant date of the units was $27,900. The following table summarizes the vesting terms for the market-based restricted stock units granted in Fiscal 2020:

Number of restricted stock units	Target Price
3,000	$	4.00
3,000	$	4.20
3,000	$	4.40
3,000	$	4.60
3,000	$	4.80
3,000	$	5.00

For the year ended May 31, 2020, there were 69,478 service-based restricted stock units granted, in addition to the 18,000 market-based restricted stock units that were granted. The total fair value of the restricted stock units, service and market based, at grant date was $261,559. Of the service-based units outstanding, 113,561 units vested, and 16,770 units canceled. Restricted stock unit activity under the Company’s stock-based compensation plans during the year ended May 31, 2020 is summarized as follows:

	Number of Units			Weighted average price at grant date		Aggregate Intrinsic Value
Non-vested restricted stock units - May 31, 2019		98,000		$	2.94	$	288,120
Restricted stock units granted		87,478			2.99		261,559
Restricted stock units vested		(113,561	)		2.83		(321,378	)
Restricted stock units forfeited		(16,770	)		2.79		(46,788	)
Non-vested restricted stock units - May 31, 2020		55,147		$	3.28	$	180,882

For the year ended May 31, 2020, total restricted stock unit compensation expense recognized was $354,048 and has been recorded as general, administration and sales expense in the Consolidated Statements of Operations and the company will realize $70,533 of expenses in future periods on RSUs granted prior to May 31, 2020.