Note 12 - Stock-based Compensation

3 Months Ended

Jul. 03, 2022

Notes to Financial Statements

Share-Based Payment Arrangement [Text Block]

Note 12 – Stock-based Compensation

The Company has three incentive stock plans, the 2006 Omnibus Incentive Plan (the “2006 Plan”), the 2014 Omnibus Equity Compensation Plan (the “2014 Plan”) and the 2021 Incentive Plan (the “2021 Plan”). As a result of the approval of the 2014 Plan by the Company’s stockholders at the Company’s 2014 annual meeting and the 2021 Plan by the Company’s stockholders at the Company’s 2021 annual meeting, grants may no longer be issued under either the 2006 Plan or the 2014 Plan. As of July 3, 2022, 852,335 shares of the Company’s common stock were available for future issuance under the 2021 Plan, which may be issued from authorized and unissued shares of the Company’s common stock or treasury shares. The Company recorded stock-based compensation expense of $333,000 and $132,000 during the three months ended July 3, 2022 and June 27, 2021, respectively. The Company records the compensation expense associated with stock-based awards granted to individuals in the same expense classifications as the cash compensation paid to those same individuals. No stock-based compensation costs were capitalized as part of the cost of an asset as of July 3, 2022.

Stock Options: The following table represents stock option activity for the three-month periods ended July 3, 2022 and June 27, 2021:

	Three-Month Periods Ended
	July 3, 2022					June 27, 2021
	Weighted-					Weighted-
	Average		Number of			Average		Number of
	Exercise		Options			Exercise		Options
	Price		Outstanding			Price		Outstanding
Outstanding at Beginning of Period	$	7.39		635,500		$	6.84		567,500
Granted		6.54		120,000			7.98		158,000
Exercised		4.92		(15,000	)		4.84		(30,000	)
Outstanding at End of Period		7.31		740,500			7.18		695,500
Exercisable at End of Period		7.40		504,000			7.19		407,500

As of July 3, 2022, the intrinsic value of the outstanding and exercisable stock options was $152,000. The intrinsic value of the stock options exercised during the three-month period ended July 3, 2022 was $20,000.

Upon the exercise of stock options, participants may choose to surrender to the Company those shares from the option exercise necessary to satisfy the exercise amount and their income tax withholding obligations that arise from the option exercise. The effect on the cash flow of the Company from these “cashless” option exercises is that the Company remits cash on behalf of the participant to satisfy his or her income tax withholding obligations. The Company used cash to remit the required income tax withholding amounts from “cashless” option exercises of $8,000 and $34,000 during the three months ended July 3, 2022 and June 27, 2021, respectively.

Stock-based compensation is calculated according to FASB ASC Topic 718, Compensation – Stock Compensation, which requires stock-based compensation to be accounted for using a fair-value-based measurement. To determine the estimated fair value of stock options granted, the Company uses the Black-Scholes-Merton valuation formula, which is a closed-form model that uses an equation to estimate fair value. The following table sets forth the assumptions used to determine the fair value of the non-qualified stock options that were awarded to certain employees during the three-month periods ended July 3, 2022 and June 27, 2021, which options vest over a two-year period, assuming continued service.

	Three-Month Periods Ended
	July 3, 2022			June 27, 2021
Number of options issued		120,000			158,000
Grant date	June 7, 2022			June 9, 2021
Dividend yield		4.89	%		4.00	%
Expected volatility		30.00	%		35.00	%
Risk free interest rate		2.95	%		0.53	%
Contractual term (years)		10.00			10.00
Expected term (years)		4.00			4.00
Forfeiture rate		5.00	%		5.00	%
Exercise price (grant-date closing price) per option	$	6.54		$	7.98
Fair value per option	$	0.90		$	1.61

During the three-month periods ended July 3, 2022 and June 27, 2021, the Company classified its compensation expense associated with stock options within the accompanying unaudited condensed consolidated statements of income as follows (in thousands):

	Three-Month Period Ended July 3, 2022						Three-Month Period Ended June 27, 2021
	Cost of		Marketing &				Cost of		Marketing &
	Products		Administrative		Total		Products		Administrative		Total
Options Granted in Fiscal Year	Sold		Expenses		Expense		Sold		Expenses		Expense
2020	$	-	$	-	$	-	$	3	$	4	$	7
2021		3		11		14		4		16		20
2022		12		30		42		2		4		6
2023		2		2		4		-		-		-
Total stock option compensation	$	17	$	43	$	60	$	9	$	24	$	33

As of July 3, 2022, total unrecognized stock option compensation expense amounted to $249,000, which will be recognized as the underlying stock options vest over a weighted-average period of 13.4 months. The amount of future stock option compensation expense could be affected by any future stock option grants and by the separation from the Company of any individual who has received stock options that are unvested as of such individual’s separation date.

Non-vested Stock Granted to Directors: The following shares of non-vested stock were granted to the Company’s directors:

Number of Shares	Fair Value per Share	Grant Date	Vesting Period (Years)
40,165	$7.47	August 11, 2021	One
41,452	5.79	August 12, 2020	Two
46,512	5.16	August 14, 2019	Two

The fair value of the non-vested stock granted to the Company’s directors was based on the closing price of the Company’s common stock on the date of each grant. The non-vested stock granted on August 11, 2021 included 8,033 shares granted to E. Randall Chestnut, formerly the Company’s Chairman, President and Chief Executive Officer. On May 1, 2022, upon the resignation of Mr. Chestnut from the Board and his retirement from all positions that he held within the Company, the vesting of these 8,033 shares was accelerated, with such shares having an aggregate value on such date of $50,000. The remaining shares set forth above otherwise vest over the periods indicated, assuming continued service.

Non-vested Stock Granted to Employees: The following shares of non-vested stock were granted to certain of the Company’s employees:

Number of Shares	Fair Value per Share	Grant Date	Vesting Date
20,000	$4.92	June 10, 2020	June 10, 2022
10,000	7.60	February 22, 2021	February 22, 2023
25,000	7.98	June 9, 2021	June 9, 2022

These shares vest on the dates indicated, assuming continued service. In June 2022, 45,000 shares that had been granted to certain of the Company’s employees vested, having an aggregate value on their respective vesting dates of $293,000.

Performance Award Shares: On  March 1, 2022, performance awards were granted to certain of the Company’s executive officers, consisting of 187,500 shares, of which: (a) 75,000 shares shall be earned if the closing price per share of the Company’s stock equals or exceeds $8.00 on ten trading days within any period of twenty consecutive trading days prior to  March 1, 2027; and (b) 112,500 shares shall be earned if the closing price per share of the Company’s stock equals or exceeds $9.00 on ten trading days within any period of twenty consecutive trading days prior to  March 1, 2027.  Upon the achievement of each applicable stock hurdle described above: (i) one-third of the shares that are earned shall vest on the later of the date on which the shares are earned and  March 1, 2023; (ii) one-third of the shares that are earned shall vest on the first anniversary of the date on which the shares are earned; (iii) one-third shall vest on the second anniversary of the date on which the shares are earned. All shares that are non-earned or non-vested will be forfeited upon the termination of service. The Company, with the assistance of an independent third party, determined that the grant date fair value of the awards amounted to $732,000.

During the three-month periods ended July 3, 2022 and June 27, 2021, the Company recorded compensation expense associated with stock grants, which is included in marketing and administrative expenses in the accompanying unaudited condensed consolidated statements of income, as follows (in thousands):

	Three-Month Period Ended July 3, 2022						Three-Month Period Ended June 27, 2021
			Non-employee		Total				Non-employee		Total
Stock Granted in Fiscal Year	Employees		Directors		Expense		Employees		Directors		Expense
2020	$	-	$	-	$	-	$	-	$	30	$	30
2021		18		30		48		22		30		52
2022		145		80		225		17		-		17
Total stock grant compensation	$	163	$	110	$	273	$	39	$	60	$	99

As of July 3, 2022, total unrecognized compensation expense related to the Company’s non-vested stock grants amounted to $636,000, which will be recognized over the respective vesting terms associated with each block of non-vested stock indicated above, such grants having an aggregate weighted-average vesting term of 15.0 months. The amount of future compensation expense related to the Company’s non-vested stock grants could be affected by any future non-vested stock grants and by the separation from the Company of any individual who has non-vested stock grants as of such individual’s separation date.