Stock-Based Compensation

9 Months Ended

Jun. 28, 2022

Share-Based Payment Arrangement [Abstract]

Stock-Based Compensation

Note 5.  Stock-Based Compensation

The Company has traditionally maintained incentive compensation plans that include a provision for the issuance of equity-based awards. The Company established the 2008 Omnibus Equity Incentive Compensation Plan in 2008 (the “2008 Plan”) and has outstanding awards that were issued under the 2008 Plan. Subsequently, the 2008 Plan expired in 2018 and the Company established a new plan, the 2018 Omnibus Equity Incentive Plan (the “2018 Plan”), pursuant to shareholder approval. Future awards will be issued under the 2018 Plan. Currently, the maximum number of shares available for issuance under the 2018 Plan is 1,050,000.

Stock-based compensation is measured at the grant date, based on the calculated fair value of the award, and is recognized as an expense over the requisite service period (generally the vesting period of the grant). The Company recognizes the impact of forfeitures as forfeitures occur.

Our net income (loss) for the three quarters ended June 28, 2022 and June 29, 2021 includes $207,000 and $327,000, respectively, of compensation costs related to our stock-based compensation arrangements.

Stock Option awards

The Company measures the compensation cost associated with stock option awards by estimating the fair value of the award as of the grant date using the Black-Scholes pricing model. The Company believes that the valuation technique and the approach utilized to develop the underlying assumptions are appropriate in calculating the fair values of the Company’s stock options and stock awards granted during the three quarters ended June 28, 2022. Estimates of fair value are not intended to predict actual future events or the value ultimately realized by the employees who receive equity awards.

In addition to the exercise and grant date prices of the stock option awards, certain weighted average assumptions that were used to estimate the fair value of stock option grants are listed in the following table:

	Three Quarters Ended June 28, 2022 Incentive and Non-Qualified Stock Options	Three Quarters Ended June 29, 2021 Incentive and Non-Qualified Stock Options
Expected term (years)	6.5	3.63
Expected volatility	61.31%	74.62%
Risk-free interest rate	1.76%	0.24%
Expected dividends	-	-

We estimate expected volatility based on historical weekly price changes of our common stock for a period equal to the current expected term of the options. The risk-free interest rate is based on the United States treasury yields in effect at the time of grant corresponding with the expected term of the options. The expected option term is the number of years we estimate that options will be outstanding prior to exercise considering vesting schedules and our historical exercise patterns.

The following table summarizes stock option activity for the three quarters ended June 28, 2022 under all plans:

	Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (Yrs)
Outstanding at beginning of year		443,815		$	3.63
Options granted		105,000		$	4.90
Options exercised		(28,797	)	$	3.10
Options Forfeited		(20,362	)	$	4.63
Outstanding June 28, 2022		499,656		$	3.89	5.7
Exercisable June 28, 2022		351,872		$	3.52	5.1

As of June 28, 2022, the aggregate intrinsic value of the outstanding and exercisable options was $57,000. Only options whose exercise price is below the closing price of the Company’s common stock as of June 28, 2022 are included in the intrinsic value calculation.

During the three quarters ended June 28, 2022, the Company granted 105,000 stock options, which includes 25,000 non-qualified stock options to its Senior Vice President of Finance pursuant to Rule 5635(c)(4) of the Nasdaq Stock Market Listing Rules as an inducement to employment.

As of June 28, 2022, the total remaining unrecognized compensation cost related to non-vested stock options was approximately $239,000 and is expected to be recognized over a weighted average period of approximately 1.6 years.

There were 28,797 stock options exercised during the three quarters ended June 28, 2022 with proceeds of approximately $90,000. There were 170,248 stock options exercised during the three quarters ended June 29, 2021 with proceeds of approximately $407,000.

Restricted Stock Units

During the three quarters ended June 28, 2022 there were 28,000 restricted stock units granted, and no restricted stock units granted during the three quarters ended June 29, 2021.

A summary of the status of non-vested restricted stock as of June 28, 2022 is presented below.

	Shares			Grant Date Fair Value Per Share
Non-vested shares at September 28, 2021		61,952		$1.54 to $3.95
Granted		28,000		$4.50
Vested		(15,616	)	$3.95
Non-vested shares at June 28, 2022		74,336		$1.54 to $4.50

As of June 28, 2022, there was $120,000 of total unrecognized compensation cost related to non-vested restricted stock. This cost is expected to be recognized over a weighted average period of approximately 2.4 years.

Restricted and Unrestricted Common Stock Awards

During the three quarters ended June 28, 2022 there were 9,256 unrestricted shares of common stock granted to directors of the Company. These shares had a grant date fair value of $4.35 per share which is equal to the closing price of the stock on the date of grant and resulted in the recognition of $40,000 of stock-based compensation expense. During the three quarters ended June 29, 2021, the Company granted its directors 12,948 shares of common stock and its Chief Executive Officer 10,000 performance shares from available shares under its 2018 Plan. The shares were issued with a grant date fair market value of $2.78 and $2.77, respectively, which is equal to the closing price of the stock on the date of grants. The performance shares granted to the Chief Executive Officer became fully vested on April 6, 2021 pursuant to the vesting provisions set forth in the grant notice.