Note 3 - Stock-based Compensation

3 Months Ended

Mar. 31, 2023

Notes to Financial Statements

Share-Based Payment Arrangement [Text Block]

3. Stock-Based Compensation

The Company previously granted stock options to employees and non-employee directors under a stock option plan (the “2004 Option Plan”). Stock options have been granted with exercise prices at or above the fair market value of the underlying shares of common stock on the date of grant. Options vest and expire according to terms established at the grant date. The 2004 Option Plan provides for a total of 5,000,000 common shares eligible for issuance. Under the 2004 Option Plan, approximately 5,009,750 options (taking into account cancelled and expired options that were added back to the plan reserve) had been granted as of December 31, 2020. Due to the cancelation and expiration of options, the 2004 Plan had 1,305,251 options available to grant at the time the 2004 Plan was replaced in 2020.

At the Company’s 2020 Annual Meeting of Shareholders, the Company’s shareholders approved the Alpha Pro Tech, Ltd. 2020 Omnibus Incentive Plan (the “2020 Incentive Plan”). The 2020 Incentive Plan provides for the grant of incentive and nonqualified stock options, stock appreciation rights, awards of restricted stock and restricted stock units, performance share awards, cash awards and other equity-based awards to employees (including officers), consultants and non-employee directors of the Company and its affiliates. A total of 1,800,000 shares of the Company’s common stock are reserved for issuance under the 2020 Incentive Plan, plus the number of shares underlying any award granted under the 2004 Option Plan that expires, terminates or is cancelled or forfeited under the terms of the 2004 Option Plan. As a result of the approval of the 2020 Incentive Plan, no future equity awards will be made pursuant to the 2004 Option Plan. Although no new awards may be granted under the 2004 Option Plan, all previously granted awards under the 2004 Option Plan will continue to be governed by the terms of the 2004 Option Plan.

The Company records compensation expense for the fair value of stock-based awards determined as of the grant date, including employee stock options and restricted stock awards, over the determined requisite service period, which is generally ratably over the vesting term.

For the three months ended March 31, 2023 and 2022, no stock options were granted under the 2004 Option Plan or the 2020 Incentive Plan. The Company recognized $3,000 and $28,000 in stock-based compensation expense for the three months ended March 31, 2023 and 2022, respectively, related to outstanding options previously granted under the 2004 Option Plan. For the three months ended March 31, 2023 and 2022, no restricted stock awards were granted under the 2020 Incentive Plan. The Company recognized $18,000 and $27,000 in compensation expense associated with outstanding restricted stock awards for the three months ended March 31, 2023 and 2022, respectively. As of March 31, 2023, $44,000 of total unrecognized compensation cost related to outstanding restricted stock awards was expected to be recognized over a weighted-average remainder period of 0.63 years.

The Company uses the Black-Scholes option-pricing model to value the options. The Company uses historical data to estimate the expected life of the options. The risk-free interest rate for periods within the contractual life of an award is based on the US Treasury yield curve in effect at the time of grant. The estimated volatility is based on historical volatility and management’s expectations of future volatility. The Company uses an estimated dividend payout of zero, as the Company has not paid dividends in the past and, at this time, does not expect to do so in the future. The Company accounts for option forfeitures as they occur. The following table summarizes stock option activity for the three months ended March 31, 2023:

			Weighted Average
			Exercise Price
	Options		Per Option
Options outstanding, December 31, 2022		410,615	$	3.50
Granted to employees and non-employee directors		-		-
Exercised		109,250		3.20
Canceled/expired/forfeited		-		-
Options outstanding, March 31, 2023		301,365		3.61
Options exercisable, March 31, 2023		286,665		3.59

As of March 31, 2023, $33,000 of total unrecognized compensation cost related to stock options was expected to be recognized over a weighted average period of 4.48 years.