Stock Options

3 Months Ended

Sep. 30, 2021

Stock Options

Stock Options

NOTE 9 - Stock Option

The Company follows ASC 718 (“Share-Based Payment”), 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. For the three months ended September 30, 2021 and 2020, the Company recorded non-cash compensation expense of $89,000 ($0.00 per basic and diluted share) and $104,000 ($0.01 per basic and diluted share), respectively, relating to stock-based compensation.

2012 Employee Stock Option Plan

In December 2012, the stockholders approved the 2012 Employee Stock Option Plan (the 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 September 30, 2021, 104,540 stock options were outstanding, 48,988 stock options were exercisable and 738,460 stock options were available for grant under this plan. During the quarter ended September 30, 2021, certain employees exercised options totaling 2,500 shares. No options were granted under this plan during the quarter ended September 30, 2021 and 2020, respectively.

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

	2021		2020
Risk-free interest rates	n/a	%	n/a	%
Expected lives	n/a		n/a
Expected volatility	n/a	%	n/a	%
Expected dividend yields	n/a	%	n/a	%

The following table reflects activity under the 2012 Employee Plan for the three months ended September 30:

	2021				2020
			Weighted average				Weighted average
	Options		exercise price		Options		exercise price
Outstanding, beginning of year		107,040	$	19.18		117,840	$	18.84
Granted		—		—		—		—
Forfeited/Lapsed		—		—		—		—
Exercised		(2,500)	$	6.31		—		—
Outstanding, end of period		104,540	$	19.48		117,840	$	18.84
Exercisable, end of period		48,988	$	16.95		37,400	$	13.73
Weighted average fair value at grant date of options granted		n/a				n/a
Total intrinsic value of options exercised	$	94,000				n/a
Total intrinsic value of options outstanding	$	2,467,000			$	706,000
Total intrinsic value of options exercisable	$	1,280,000			$	399,000

2,500 stock options were exercised during the three months ended September 31, 2021. There were no stock options exercised during the quarter ended September 30, 2020. $16,000 cash was received from option exercises during the three months ended September 30, 2021, and the actual tax benefit realized for the tax deductions from option exercises was $0.

The following table summarizes information about stock options outstanding under the 2012 Employee Plan at September 30, 2021:

	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	104,540	7.31	$	19.48	48,988	$	16.95
	104,540	7.31	$	19.48	48,988	$	16.95

As of September 30, 2021, there was $499,000 of unearned stock-based compensation cost related to share-based compensation arrangements granted under the 2012 Employee Plan. There were no grants of options in either quarter ended September 30, 2021 and 2020, respectively. 2,400 options vested during the three months ended September 30, 2021 and 2020, respectively. The total fair value of the options vesting during the three months ended September 30, 2021 and 2020 under this plan was $29,000 and $29,000, 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 September 30, 2021, 6,000 stock options were outstanding, 3,120 stock options were exercisable and 4,800 stock options were available for grant under this plan. There were no exercises during the three months ended September 30, 2021. No options were granted under this plan during the three months ended September 30, 2021 and 2020, respectively.

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

	2021		2020
Risk-free interest rates	n/a	%	n/a	%
Expected lives	n/a		n/a
Expected volatility	n/a	%	n/a	%
Expected dividend yields	n/a	%	n/a	%

The following table reflects activity under the 2012 Non-Employee Plan for the three months ended September 30:

	2021				2020
			Weighted average				Weighted average
	Options		exercise price		Options		exercise price
Outstanding, beginning of year		6,000	$	13.10		12,000	$	10.29
Granted		—		—		—		—
Forfeited/Lapsed		—		—		—		—
Exercised		—		—		—		—
Outstanding, end of period		6,000	$	13.10		12,000	$	10.29
Exercisable, end of period		3,120	$	12.08		5,760	$	8.35
Weighted average fair value at grant date of options granted		n/a				n/a
Total intrinsic value of options exercised		n/a				n/a
Total intrinsic value of options outstanding	$	180,000			$	159,000
Total intrinsic value of options exercisable	$	97,000			$	87,000

No stock options were exercised during the three months ended September 30, 2021 or 2020. No cash was received from option exercises during either of the three months ended September 30, 2021 or 2020 and the actual tax benefit realized for the tax deductions from option exercises was $0 for both periods.

The following table summarizes information about stock options outstanding under the 2012 Non-Employee Plan at September 30, 2021:

	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
$8.70 - $23.35	6,000	6.85	$	13.10	3,120	$	12.08
	6,000	6.85	$	13.10	3,120	$	12.08

As of September 30, 2021, there was $10,000 of unearned stock-based compensation cost related to share-based compensation arrangements granted under the 2012 Non-Employee Plan. No options were granted during the three months ended September 30, 2021 or 2020. No options vested during the three months ended September 30, 2021 or 2020.

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 September 30, 2021, 35,050 stock options were outstanding, 14,980 stock options were exercisable and 11,750 stock options were available for grant under this plan. No

options were exercised under this plan for the three months ended September 30, 2021. No options were granted under this plan during the three months ended September 30, 2021 and 2020, respectively.

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

	2021		2020
Risk-free interest rates	n/a	%	n/a	%
Expected lives	n/a		n/a
Expected volatility	n/a	%	n/a	%
Expected dividend yields	n/a	%	n/a	%

The following table reflects activity under the 2018 Non-Employee Plan for the three months ended September 30:

	2021				2020
			Weighted average				Weighted average
	Options		exercise price		Options		exercise price
Outstanding, beginning of year		35,050	$	23.85		48,400	$	23.48
Granted		—		—		—		—
Forfeited/Lapsed		—		—		—		—
Exercised		—		—		—		—
Outstanding, end of period		35,050	$	23.85		48,400	$	23.48
Exercisable, end of period		14,980	$	23.36		12,240	$	21.96
Weighted average fair value at grant date of options granted		n/a				n/a
Total intrinsic value of options exercised		n/a				n/a
Total intrinsic value of options outstanding	$	674,000			$	114,000
Total intrinsic value of options exercisable	$	295,000			$	41,000

No stock options were exercised during the three months ended September 30, 2021 or 2020. No cash was received from option exercises during either of the three months ended September 30, 2021 or 2020 and the actual tax benefit realized for the tax deductions from option exercises was $0 for both periods.

The following table summarizes information about stock options outstanding under the 2018 Non-Employee Plan at September 30, 2021:

	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	35,050	7.95	$	23.85	14,980	$	23.36
	35,050	7.95	$	23.85	14,980	$	23.36

As of September 30, 2021, there was $186,000 of unearned stock-based compensation cost related to share-based compensation arrangements granted under the 2018 Non-Employee Plan. No options were granted during the three months ended September 30, 2021 or 2020. No options vested during the three months ended September 30, 2021 or 2020.

2020 Non-Employee Stock Option Plan

In May 2020, the stockholders approved the 2020 Non-Employee Stock Option Plan (the “2020 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 2020 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 September 30, 2021, 5,000 stock options were outstanding, 2,000 stock options were exercisable and 45,000 stock options were available for grant under this plan. There were no grants for the three months ended September 30, 2021.

The fair value of each option granted during the three months year ended September 30, 2021 and 2020 was estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions:

	2021		2020
Risk-free interest rates	n/a	%	0.62	%
Expected lives	n/a		10
Expected volatility	n/a	%	45	%
Expected dividend yields	n/a	%	0	%

The following table reflects activity under the 2020 Non-Employee Plan for the three months ended September 30:

	2021				2020
			Weighted average				Weighted average
	Options		exercise price		Options		exercise price
Outstanding, beginning of year		5,000	$	22.80		—		—
Granted		—		—		5,000	$	22.80
Forfeited/Lapsed		—		—		—		—
Exercised		—		—		—		—
Outstanding, end of period		5,000	$	22.80		5,000	$	22.80
Exercisable, end of period		2,000	$	22.80		1,000	$	22.80
Weighted average fair value at grant date of options granted		n/a			$	12.20
Total intrinsic value of options exercised		n/a				n/a
Total intrinsic value of options outstanding	$	101,000			$	4,000
Total intrinsic value of options exercisable	$	41,000			$	1,000

No stock options were exercised during the three months ended September 30, 2021 or 2020. No cash was received from option exercises during either of the three months ended September 30, 2021 or 2020 and the actual tax benefit realized for the tax deductions from option exercises was $0 for both periods.

The following table summarizes information about stock options outstanding under the 2020 Non-Employee Plan at September 30, 2021:

	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
$22.80	5,000	8.93	$	22.80	2,000	$	22.80
	5,000	8.93	$	22.80	2,000	$	22.80

As of September 30, 2021, there was $34,000 of unearned stock-based compensation cost related to share-based compensation arrangements granted under the 2020 Non-Employee Plan. There were no grants of options in the three months ended September 30, 2021. There were 5,000 options granted during the three months ended September 30, 2020. 1,000 options vested during the three months ended September 30, 2021 and 2020, respectively. The total fair value of the options vesting during the three months ended September 30, 2021 and 2020 under this plan was $12,000 and $12,000, respectively.