Stock Option

3 Months Ended

Sep. 30, 2022

Stock Option

Stock Option

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, 2022 and 2021, the Company recorded non-cash compensation expense of

$477,000 ($0.01 per basic and diluted share) and $89,000 ($0.00 per basic and diluted share), respectively, relating to stock-based compensation.

2022 Employee Stock Option Plan

In December 2022, the stockholders approved the 2022 Employee Stock Option Plan (the “2022 Employee Plan”). The 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”) or non-incentive stock options, 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 2022 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, 2022, no stock options were granted or outstanding.

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 1,900,000 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”) or non-incentive stock options, 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, 2022, 555,380 stock options were outstanding, 183,852 stock options were exercisable and 1,101,420 stock options were available for grant under this plan.  No options may be granted under this plan after December 2022. 37,500 Options were granted during the three months ended September 30, 2022. There were no options granted during the three months ended September 30, 2021. 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:

	2022		2021
Risk-free interest rates	3.03	%	n/a
Expected lives	7.27 Years		n/a
Expected volatility	43	%	n/a
Expected dividend yields	0	%	n/a

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

	2022				2021
			Weighted average				Weighted average
	Options		exercise price		Options		exercise price
Outstanding, beginning of year		523,080	$	18.59		214,080	$	9.59
Granted		37,500	$	26.94		—		—
Forfeited/Lapsed		—		—		—		—
Exercised		(5,200)	$	8.64		(5,000)	$	3.16
Outstanding, end of period		555,380	$	19.25		209,080	$	9.74
Exercisable, end of period		183,852	$	15.26		97,976	$	8.48
Weighted average fair value at grant date of options granted	$	13.36				n/a
Total intrinsic value of options exercised	$	107,000			$	94,000
Total intrinsic value of options outstanding	$	5,684,000			$	2,467,000
Total intrinsic value of options exercisable	$	2,586,000			$	1,280,000

5,200 and 5,000 stock options were exercised during the three months ended September 31, 2022 and 2021, respectively. $45,000 and $16,000 cash was received from the option exercises during the three months ended September 30, 2022 and 2021, respectively. The actual tax benefit realized for the tax deductions from option exercises during the three months ended September 30, 2022 and 2021 was $0 for each period.

The following table summarizes information about stock options outstanding under the 2012 Employee Plan at September 30, 2022:

	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
$2.99 ‑ $26.94	555,380	8.30	$	19.25	183,852	$	15.26
	555,380	8.30	$	19.25	183,852	$	15.26

As of September 30, 2022, there was $2,651,000 of unearned stock-based compensation cost related to share-based compensation arrangements granted under the 2012 Employee Plan. 37,500 and 0 options were granted during the three months ended September 30, 2022 and 2021, respectively. 12,300 and 4,800 options vested during the three months ended September 30, 2022 and 2021, respectively. The total grant date fair value of the options vesting during the three months ended September 30, 2022 and 2021 under this plan was $129,000 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 100,000 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, 2022, 20,400 stock options were outstanding, 11,280 stock options were exercisable and no further stock options were available for grant under this plan.

There were no options granted during the three months ended September 30, 2022 and 2021. No options may be granted under this plan after December 2022. 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:

	2022	2021
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:

	2022				2021
			Weighted average				Weighted average
	Options		exercise price		Options		exercise price
Outstanding, beginning of year		20,400	$	14.39		12,000	$	6.55
Granted		—		—		—		—
Forfeited/Lapsed		—		—		—		—
Exercised		—		—		—		—
Outstanding, end of period		20,400	$	14.39		12,000	$	6.55
Exercisable, end of period		11,280	$	8.92		6,240	$	6.04
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	$	300,000			$	180,000
Total intrinsic value of options exercisable	$	227,000			$	97,000

No stock options were exercised during the three months ended September 30, 2022 or 2021. No cash was received from option exercises during either of the three months ended September 30, 2022 or 2021 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, 2022:

	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
$4.35 - $22.93	20,400	7.40	$	14.39	11,280	$	8.92
	20,400	7.40	$	14.39	11,280	$	8.92

As of September 30, 2022, there was $64,000 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, 2022 and 2021. No options vested during the three months ended September 30, 2022 and 2021.

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 100,000 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, 2022, 82,700 stock options were outstanding, 38,740 stock options were exercisable and no further stock options were available for grant under this plan.

There were no options granted during the three months ended September 30, 2022 and 2021. No options may be granted under this plan after December 2028. 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:

	2022	2021
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:

	2022				2021
			Weighted average				Weighted average
	Options		exercise price		Options		exercise price
Outstanding, beginning of year		89,000	$	14.91		70,100	$	11.93
Granted		—		—		—		—
Forfeited/Lapsed		—		—		—		—
Exercised		(6,300)	$	14.41		—		—
Outstanding, end of period		82,700	$	14.95		70,100	$	11.93
Exercisable, end of period		38,740	$	12.75		29,960	$	11.68
Weighted average fair value at grant date of options granted		n/a				n/a
Total intrinsic value of options exercised	$	99,000				n/a
Total intrinsic value of options outstanding	$	1,169,000			$	674,000
Total intrinsic value of options exercisable	$	633,000			$	295,000

6,300 and 0 options were exercised during the three months ended September 30, 2022 and 2021, respectively. The 6,300 options that were exercised during the three months ended September 30, 2022 were settled by exchanging 3,020 shares of the Company’s common stock which were retired and returned to unissued status upon receipt. No cash was received from option exercises during the three months ended September 30, 2022 and 2021 and the actual tax benefit realized for the tax deductions from option exercises was $21,000 and $0, respectively.

The following table summarizes information about stock options outstanding under the 2018 Non-Employee Plan at September 30 2022:

	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
$8.10 - $22.93	82,700	7.53	$	14.95	38,740	$	12.75
	82,700	7.53	$	14.95	38,740	$	12.75

As of September 30, 2022, there was $228,000 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, 2022 and 2021. No options vested during the three months ended September 30, 2022.

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 100,000 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, 2022, 51,900 stock options were outstanding, 14,380 stock options were exercisable and 48,100 stock options were available for grant under this plan.

25,000 options were granted during the three months ended September 30, 2022 under the 2020 Non-Employee Plan. There were no options granted during the three months ended September 30, 2021. No options may be granted under this plan after May 2030. 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:

	2022		2021
Risk-free interest rates	3.03	%	n/a
Expected lives	7.27 Years		n/a
Expected volatility	43	%	n/a
Expected dividend yields	0	%	n/a

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

	2022				2021
			Weighted average				Weighted average
	Options		exercise price		Options		exercise price
Outstanding, beginning of year		26,900	$	18.64		10,000	$	11.40
Granted		25,000	$	26.94		—		—
Forfeited/Lapsed		—		—		—		—
Exercised		—		—		—		—
Outstanding, end of period		51,900	$	22.64		10,000	$	11.40
Exercisable, end of period		14,380	$	19.51		4,000	$	11.40
Weighted average fair value at grant date of options granted	$	13.36			$	n/a
Total intrinsic value of options exercised		n/a				n/a
Total intrinsic value of options outstanding	$	334,000			$	101,000
Total intrinsic value of options exercisable	$	138,000			$	41,000

No stock options were exercised during the three months ended September 30, 2022 or 2021. No cash was received from option exercises during either of the three months ended September 30, 2022 or 2021 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, 2022:

	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
$11.40 - $26.94	51,900	9.25	$	22.64	14,380	$	19.51
	51,900	9.25	$	22.64	14,380	$	19.51

As of September 30, 2022, there was $374,000 of unearned stock-based compensation cost related to share-based compensation arrangements granted under the 2020 Non-Employee Plan. 25,000 and 0 options were granted during the three months ended September 30, 2022 and 2021, respectively. 7,000 and 2,000 options vested during the three months ended September 30, 2022 and 2021, respectively. The total grant date fair value of the options vesting during the three months ended September 30, 2022 and 2021 under this plan was $79,000 and $12,000, respectively.