NOTE 8 - Stock Options

The Company follows ASC Topic 718, "Compensation-Stock Compensation", which requires that all share based payments to employees, including stock options, be recognized as compensation expense in the consolidated financial statements based on their fair values and over the requisite service period. The Company recorded non-cash compensation expense relating to stock-based compensation of $172,000 and $0 for the three months ended March 31, 2020 and 2019, respectively ($0.02 and $0.00 per basic and diluted share for each period, respectively) and $497,000 and $152,000 for the nine months ended March 31, 2020 and 2019, respectively ($0.04 and $0.01 per basic and diluted share for each period, respectively).

2012 Employee Stock Option Plan

In December 2012, the stockholders approved the 2012 Employee Stock Option Plan (" 2012 Employee Plan"). The 2012 Employee Plan authorizes the granting of awards, the exercise of which would allow up to an aggregate of 950,000 shares of the Company’s common stock to be acquired by the holders of such awards. Under this plan, the Company may grant stock options, which are intended to qualify as incentive stock options ("ISOs"), to valued employees. Any plan participant who is granted ISOs and possesses more than 10% of the voting rights of the Company’s outstanding common stock must be granted an option with a price of at least 110% of the fair market value on the date of grant.

Under the 2012 Employee Plan, stock options may be granted to valued employees with a term of up to 10 years at an exercise price equal to or greater than the fair market value on the date of grant and are exercisable, in whole or in part, at 20% per year beginning on the date of grant. An option granted under this plan shall vest in full upon a “change in control” as defined in the plan. At March 31, 2020, 99,400 stock options were outstanding, 36,900 stock options were exercisable and 751,900 stock options were available for grant under this plan.

The fair value of each option granted during the nine months ended March 31 was estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions:


	2020		2019
Risk-free interest rates	1.30% - 2.10	%	3.10	%
Expected lives	10	years	10	years
Expected volatility	44% - 46	%	52	%
Expected dividend yields	0	%	0	%

The following table reflects activity under the 2012 Employee Plan for the nine months ended March 31,:


	2020				2019
			Weighted average				Weighted average
	Options		exercise price		Options		exercise price
Outstanding, beginning of year		72,500	$	11.01		57,200	$	7.09
Granted		41,000		27.76		24,000		15.28
Exercised		(14,100)		7.57		(13,200)		6.43

Outstanding, end of period		99,400	$	18.41		68,000	$	10.11

Exercisable, end of period		36,900	$	13.27		33,000	$	7.84

Weighted average fair value at grant date of options granted	$	15.28			$	8.76
Total intrinsic value of options exercised	$	255,000			$	150,000
Total intrinsic value of options outstanding	$	241,000			$	723,000
Total intrinsic value of options exercisable	$	172,000			$	430,000

14,100 and 3,700 stock options were exercised during the three months ended March 31, 2020 and 2019, respectively. $71,000 and $3,000 of cash was received from option exercises during the three months ended March 31, 2020 and 2019, respectively, and the actual tax benefit realized for the tax deductions from option exercises was $8,000 and $3,000, respectively. 14,100 and 13,200 stock options were exercised during the nine months ended March 31, 2020 and 2019, respectively. $71,000 and $27,000 of cash was received from option exercises during the nine months ended March 31, 2020 and 2019, respectively, and the actual tax benefit realized for the tax deductions from option exercises was $8,000 and $7,000, respectively.

The following table summarizes information about stock options outstanding under the 2012 Employee Plan at March 31, 2020:


	Options outstanding				Options exercisable
		Weighted average
	Number	remaining	Weighted average		Number	Weighted average
Range of exercise prices	outstanding	contractual life	exercise price		exercisable	exercise price
$4.37‑$33.59	99,400	8.2	$	18.41	36,900	$	13.27
	99,400	8.2	$	18.41	36,900	$	13.27

As of March 31, 2020, there was $646,000 of unearned stock-based compensation cost related to share-based compensation arrangements granted under the 2012 Employee Plan. 41,000 and 24,000 options were granted during the nine months ended March 31, 2020 and 2019, respectively. 17,200 and 15,600 options vested during the nine months ended March 31, 2020 and 2019, respectively. 13,000 and 0 options were granted during the three months ended March 31, 2020 and 2019, respectively. 2,600 and 0 options vested during the three months ended March 31, 2020 and 2019, respectively. The total fair value of the options vesting during the three months ended March 31, 2020 and 2019 under this plan was $33,000 and $0, respectively. The total fair value of the options vesting during the nine months ended March 31, 2020 and 2019 under this plan was $183,000 and $86,000, respectively.

2012 Non-Employee Stock Option Plan

In December 2012, the stockholders approved the 2012 Non-Employee Stock Option Plan (the “2012 Non-Employee Plan”). This plan authorizes the granting of awards, the exercise of which would allow up to an aggregate of 50,000 shares of the Company’s common stock to be acquired by the holders of such awards. Under this plan, the Company may grant stock options to non-employee directors and consultants to the Company and its subsidiaries.

Under the 2012 Non-Employee Plan, stock options may be granted with a term of up to 10 years at an exercise price equal to or greater than the fair market value on the date of grant and are exercisable in whole or in part at 20% per year beginning on the date of grant. An option granted under this plan shall vest in full upon a “change in control” as defined in the plan. At March 31, 2020, 12,000 stock options were outstanding, 5,760 stock options were exercisable and no further stock options were available for grant under this plan.


	2020
Risk-free interest rates	1.60	%
Expected lives	10 years
Expected volatility	44	%
Expected dividend yields	—	%

The following table reflects activity under the 2012 Non-Employee Plan for the nine months ended March 31,:


	2020				2019
			Weighted average				Weighted average
	Options		exercise price		Options		exercise price
Outstanding, beginning of year		10,200	$	7.99		27,800	$	6.85
Granted		1,800		23.35		—		—
Exercised		—		—		(14,600)		5.68

Outstanding, end of period		12,000	$	10.29		13,200	$	8.15

Exercisable, end of period		5,760	$	8.35		4,200	$	6.97

Weighted average fair value at grant date of options granted	$	12.94				n/a
Total intrinsic value of options exercised		n/a			$	167,000
Total intrinsic value of options outstanding	$	73,000			$	166,000
Total intrinsic value of options exercisable	$	42,000			$	58,000

0 and 3,600 stock options were exercised during the three months ended March 31, 2020 and 2019, respectively. No cash was received from option exercises during either of the three months ended March 31, 2020 or 2019 and the actual tax benefit realized for the tax deductions from option exercises was $0 and $10,000, respectively. 0 and 14,600 stock options were exercised during the nine months ended March 31, 2020 and 2019, respectively. No cash was received from option exercises during either of the nine months ended March 31, 2020 or 2019 and the actual tax benefit realized for the tax deductions from option exercises was $0 and $35,000, respectively.

The following table summarizes information about stock options outstanding under the 2012 Non-Employee Plan at March 31, 2020:


	Options outstanding				Options exercisable
		Weighted average	Weighted			Weighted
	Number	remaining	average exercise		Number	average exercise
Range of exercise prices	outstanding	contractual life	price		exercisable	price
$4.37 - $23.35	12,000	7.5	$	10.29	5,760	$	8.35
	12,000	7.5	$	10.29	5,760	$	8.35

As of March 31, 2020, there was $52,000 of unearned stock-based compensation cost related to share-based compensation arrangements granted under the 2012 Non-Employee Plan. 1,800 and 0 options were granted during the three months ended March 31, 2020 and 2019, respectively. 360 and 0 options vested during the three months ended March 31, 2020 and 2019, respectively. 1,800 and 0 options were granted during the nine months ended March 31, 2020 and 2019, respectively. 2,760 and 5,000 options vested during the nine months ended March 31, 2020 and 2019, respectively. The total fair value of the options vesting during the three months ended March 31, 2020 and 2019 under this plan was $3,000 and $0, respectively. The total fair value of the options vesting during the nine months ended March 31, 2020 and 2019 under this plan was $18,000 and $22,000, respectively.

2018 Non-Employee Stock Option Plan

In December 2018, the stockholders approved the 2018 Non-Employee Stock Option Plan (the “2018 Non-Employee Plan”). This plan authorizes the granting of awards, the exercise of which would allow up to an aggregate of 50,000 shares of the Company’s common stock to be acquired by the holders of such awards. Under this plan, the Company may grant stock options to non-employee directors and consultants to the Company and its subsidiaries.

Under the 2018 Non-Employee Plan, stock options may be granted with a term of up to 10 years at an exercise price equal to or greater than the fair market value on the date of grant and are exercisable in whole or in part at 20% per year beginning on the date of grant. An option granted under this plan shall vest in full upon a “change in control” as defined in the plan. At March 31, 2020, 48,400 stock options were outstanding, 12,240 stock options were exercisable and 0 stock options were available for grant under this plan.


	2020		2019
Risk-free interest rates	1.60% - 1.80	%	2.9	%
Expected lives	10	years	10	years
Expected volatility	44% - 45	%	50	%
Expected dividend yields	—	%	—	%

The following table reflects activity under the 2018 Non-Employee Plan for the nine months ended March 31,:


	2020					2019
			Weighted average				Weighted average
	Options		exercise price			Options	exercise price
Outstanding, beginning of year		15,200	$	16.20		—	$	—
Granted		33,200		26.82		20,000		16.20

Outstanding, end of period		48,400	$	23.48		20,000	$	16.20

Exercisable, end of period		12,240	$	21.96		4,000	$	16.20

Weighted average fair value at grant date of options granted	$	15.09			$	10.24
Total intrinsic value of options exercised		n/a				n/a
Total intrinsic value of options outstanding	$	0			$	91,000
Total intrinsic value of options exercisable	$	0			$	18,000

No stock options were exercised during the nine months ended March 31, 2020 and 2019. No cash was received from option exercises during either of the nine months ended March 31, 2020 or 2019 and the actual tax benefit realized for the tax deductions from option exercises was $0 for each of these periods.

The following table summarizes information about stock options outstanding under the 2018 Non-Employee Plan at March 31, 2020:


	Options outstanding				Options exercisable
		Weighted average	Weighted			Weighted
	Number	remaining	average exercise		Number	average exercise
Range of exercise prices	outstanding	contractual life	price		exercisable	price
$16.20-$30.54	48,400	9.4	$	23.48	12,240	$	21.96
	48,400	9.4	$	23.48	12,240	$	21.96

As of March 31, 2020, there was $444,000 of unearned stock-based compensation cost related to share-based compensation arrangements granted under the 2018 Non-Employee Plan. 17,200 and 0 options were granted during the three months ended March 31, 2020 and 2019, respectively. 3,440 and 0 options vested during the three months ended March 31, 2020 and 2019, respectively. 33,200 and 20,000 options were granted during the nine months ended March 31, 2020 and 2019, respectively. 2,400 and 4,000 options vested during the nine months ended March 31, 2020 and 2019, respectively. The total fair value of the options vesting during the three months ended March 31, 2020 and 2019 under this plan was $45,000 and $0, respectively. The total fair value of the options vesting during the nine months ended March 31, 2020 and 2019 under this plan was $133,000 and $41,000, respectively.