NOTE 8 - Stock Options

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 fiscal years ended June 30, 2020 and 2019, the Company recorded non-cash compensation expense of $583,000 ($0.03 per basic and diluted share) and $160,000 ($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 June 30, 2020, 117,840 stock options were outstanding, 35,000 stock options were exercisable and 731,960 stock options were available for grant under this plan.

The fair value of each option granted during fiscal 2020 and 2019 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	0.6% - 2.1	%	2.5% - 3.1	%
Expected lives	10	years	10	years
Expected volatility	44% - 46	%	48% - 52	%
Expected dividend yields	0	%	0	%

The Company uses a weighted-average expected stock-price volatility assumption that is a combination of both current and historical implied volatilities of the underlying stock. The implied volatilities were obtained from publicly available data sources. For the weighted-average expected option life assumption, the Company considers the exercise behavior of past grants. The average risk-free interest rate is based on the U.S. Treasury Bond rate for the expected term of the options and the average dividend yield is based on historical experience.

The following table reflects activity under the 2012 Plan for the fiscal years ended June 30,:


	2020					2019
			Weighted				Weighted
			average				average
			exercise				exercise
	Options		price		Options		price
Outstanding, beginning of year		72,500	$	11.01		57,200	$	7.09
Granted		70,940		24.50		29,000		16.59
Terminated		(10,000)		19.84		0		0
Exercised		(15,600)		7.55		(13,700)		6.42
Outstanding, end of year		117,840	$	18.84		72,500	$	11.01
Exercisable, end of year		35,000	$	13.13		33,800	$	8.05

Weighted average fair value at grant date of options granted	$	13.43			$	9.15
Total intrinsic value of options exercised	$	278,000			$	160,000
Total intrinsic value of options outstanding	$	696,000			$	1,353,000
Total intrinsic value of options exercisable	$	389,000			$	731,000

The following table summarizes information about stock options outstanding under the 2012 Employee Plan at June 30, 2020:


	Options outstanding				Options exercisable
		Weighted
		average	Weighted			Weighted
Range of	Number	remaining	average exercise		Number	average exercise
exercise prices	outstanding	contractual life	price		exercisable	price
$4.37‑$33.59	117,840	8.4	$	18.84	35,000	$	6.50
	117,840	8.4	$	18.84	35,000	$	6.50

As of June 30, 2020, there was $849,000 of unearned stock-based compensation cost related to share-based compensation arrangements granted under the 2012 Employee Plan. 70,940 and 29,000 options were granted during the fiscal years ended June 30, 2020 and 2019, respectively. 3,600 of the 15,600 stock options exercised during the fiscal year ended June 30, 2020 were settled by exchanging 1,628 shares of the Company's common stock which were retired and returned to unissued status upon receipt. 8,200 of the 13,700 stock options exercised during the fiscal year ended June 30, 2019 were settled by exchanging 3,106 shares of the Company’s common stock which were retired and returned to unissued status upon receipt. The total grant date fair value of the options vesting during the fiscal years ended June 30, 2020 and 2019 under this plan was $197,000 and $95,000, respectively. $79,000 and $31,000 was received from option exercises for the fiscal years ended June 30, 2020 and 2019, respectively, and the actual tax benefit realized for the tax deductions from option exercises was $0 for each of these periods.

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 June 30, 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.

The fair value of each option granted during fiscal 2020 was estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions:


	2020
Risk-free interest rates	1.6	%
Expected lives	10	years
Expected volatility	44	%
Expected dividend yields	0	%

The following table reflects activity under the 2012 Non-Employee Plan for the fiscal years ended June 30,:


	2020					2019
			Weighted				Weighted
			average				average
			exercise				exercise
	Options		price		Options		price
Outstanding, beginning of year		10,200	$	7.99		27,800	$	6.85
Granted		1,800		23.35		—		—
Terminated		—		—		(1,800)		8.70
Exercised		—		—		(15,800)		5.91
Outstanding, end of year		12,000	$	10.29		10,200	$	7.99
Exercisable, end of year		5,760	$	8.35		3,000	$	6.27

Weighted average fair value at grant date of options granted	$	12.94				n/a
Total intrinsic value of options exercised		n/a			$	192,000
Total intrinsic value of options outstanding	$	157,000			$	221,000
Total intrinsic value of options exercisable	$	87,000			$	70,000

The following table summarizes information about stock options outstanding under the 2012 Non-Employee Plan at June 30, 2020:


	Options outstanding				Options exercisable
		Weighted average	Weighted			Weighted
Range of	Number	remaining	average exercise		Number	average exercise
exercise prices	outstanding	contractual life	price		exercisable	price
$4.37 - $23.35	12,000	7.2	$	10.29	5,760	$	8.35
	12,000	7.2	$	10.29	5,760	$	8.35

As of June 30, 2020, there was $46,000 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 fiscal years ended June 30, 2020 and 2019, respectively. 14,600 of the 15,800 stock options exercised during the fiscal year ended June 30, 2019 were settled by exchanging 4,832 shares of the Company's common stock which were retired and returned to unissued status upon receipt. The total grant date fair value of the options vesting during each of the fiscal years ended June 30, 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 June 30, 2020, 48,400 stock options were outstanding, 12,240 stock options were exercisable and 0 stock options were available for grant under this plan.

The fair value of each option granted during the fiscal year ended June 30, 2020 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	1.6% - 1.8	%	2.9	%
Expected lives	10	years	10	years
Expected volatility	44% - 45	%	50	%
Expected dividend yields	0	%	0	%

The following table reflects activity under the 2018 Non-Employee plan for the fiscal year ended June 30,:


	2020				2019
			Weighted average exercise				Weighted average exercise
	Options		price		Options		price
Outstanding, beginning of year		15,200	$	16.20		—	$	—
Granted		33,200		26.82		20,000		16.20
Terminated		—		—		(3,200)		16.20
Exercised		—		—		(1,600)		16.20
Outstanding, end of year		48,400	$	23.48		15,200	$	16.20
Exercisable, end of year		12,240	$	21.96		2,400	$	16.20
Weighted average fair value at grant date of options granted	$	15.09			$	10.24
Total intrinsic value of options exercised		n/a			$	24,000
Total intrinsic value of options outstanding	$	110,000			$	205,000
Total intrinsic value of options exercisable	$	40,000			$	32,000

The following table summarizes information about stock options outstanding under the 2018 Non- Employee Plan at June 30, 2020:


	Options outstanding				Options exercisable
		Weighted
		average	Weighted			Weighted
Range of	Number	remaining	average exercise		Number	average exercise
exercise prices	outstanding	contractual life	price		exercisable	price
$16.20-$30.54	48,400	9.2	$	23.48	12,240	$	21.96
	48,400	9.2	$	23.48	12,240	$	21.96

As of June 30, 2020, there was $410,000 of unearned stock-based compensation cost related to share-based compensation arrangements granted under the 2018 Non-Employee Plan. 33,200 and 20,000 options were granted during the fiscal years ended June 30, 2020 and 2019, respectively. 800 of the 1,600 stock options exercised during the fiscal year ended June 30, 2019 were settled by exchanging 395 shares of the Company’s common stock which were retired and returned to unissued status upon receipt and the actual tax benefit realized for the tax deductions from option exercises was $0 for each of these periods. The total grant date fair value of the options vesting during the fiscal year ended June 30, 2020 and 2019 under this plan was $133,000 and $41,000, respectively.

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 June 30, 2020, 0 stock options were outstanding, 0 stock options were exercisable and 50,000 stock options were available for grant under this plan.