Shareholders' Equity and Share-Based Payments

3 Months Ended

Dec. 31, 2024

Shareholders' Equity and Share-Based Payments

Shareholders' Equity and Share-Based Payments

4. Shareholders’ Equity and Share-Based Payments

At June 30, 2024, the Company’s Amended and Restated Articles of Incorporation provides the Company authority to issue 75,000,000 shares of common stock and 10,000,000 shares of preferred stock.

Share-Based Compensation

The Company accounts for share-based compensation under the provisions of ASC Topic 718, “Compensation – Stock Compensation”, by using the fair value method for expensing stock options, performance based equity awards and stock awards.

Amended and Restated 2019 Stock-Based Incentive Compensation Plan

The Company’s 2019 Stock-Based Incentive Compensation Plan (as amended, the “2019 Plan”) was approved by the Company’s shareholders at the Company’s Annual Meeting of Shareholders held on April 2, 2019. The 2019 Plan authorizes the grant of stock appreciation rights, restricted stock, options, performance based equity awards, and other equity-based awards. Options granted under the 2019 Plan may be either “incentive stock options” as defined in Section 422 of the U.S. Internal Revenue Code of 1986, as amended (the “Code”), or nonqualified stock options, as determined by the Compensation Committee.

Subject to an adjustment necessary upon a stock dividend, recapitalization, forward split or reverse split, reorganization, merger, consolidation, spin-off, combination, repurchase or share exchange, extraordinary or unusual cash distribution, or similar corporate transaction or event, the maximum number of shares of common stock available for awards under the 2019 Plan is 750,000, plus 139,691 shares of common stock that were authorized but unissued under the Company’s 2009 Plan as of April 2, 2019, the effective date of the 2019 Plan, all of which may be issued pursuant to awards of incentive stock options. On April 18, 2024, the Company amended the 2019 Plan to include an additional 1,950,000 authorized shares available for issuance. As of December 31, 2024, there were 1,679,135 shares of common stock available for awards under the 2019 Plan.

If any award is forfeited, terminates or otherwise is settled for any reason without an actual distribution of shares to the participant, the related shares of common stock subject to such award will again be available for future grant. Any shares tendered by a participant in payment of the exercise price of an option or the tax liability with respect to an award (including, in any case, shares withheld from any such award) will not be available for future grant under the 2019 Plan. If there is any change in the Company’s corporate capitalization, the Compensation Committee must proportionately and equitably adjust the number and kind of shares of common stock which may be issued in connection with future awards, the number and kind of shares of common stock covered by awards then outstanding under the 2019 Plan, the aggregate number and kind of shares of common stock available under the 2019 Plan, any applicable individual limits on the number of shares of common stock available for awards under the 2019 Plan, the exercise or grant price of any award, or if deemed appropriate, make provision for a cash payment with respect to any outstanding award. In addition, the Compensation Committee may make adjustments in the terms and conditions of any awards, including any performance goals, in recognition of unusual or nonrecurring events affecting the Company or any subsidiary, or in response to changes in applicable laws, regulations, or accounting principles.

The 2019 Plan will terminate on April 2, 2029, unless earlier terminated by the Company’s Board of Directors (the “Board”). Termination will not affect awards outstanding at the time of termination. The Board may amend, alter, suspend, discontinue, or terminate the 2019 Plan without shareholder approval, provided that shareholder approval is required for any amendment which (i) would increase the number of shares subject to the 2019 Plan; (ii) would decrease the price at which awards may be granted; or (iii) would require shareholder approval by law, regulation, or the rules of any stock exchange or automated quotation system.

Market-Based Restricted Stock Units

During the three months ended December 31, 2024, to better align executive compensation with the Company’s Total Shareholder Return (“TSR”), the Board approved a special one-time grant of 201,000 market-based restricted stock units (“MSUs”) to the Company’s Chief Executive Officer under the terms and conditions of the 2019 Plan. The MSU is a restricted stock unit containing vesting terms conditional upon the attainment of both 1) continued service to vesting and 2) stock price appreciation targets indexed against the Company’s actual stock price performance over a specified measurement period. Under the terms of the grant, the MSU will vest as follows:

1) an initial one-third (1/3^rd) of the MSUs shall vest on the first trading date after the shares of the Company’s common stock have traded at a price equal to or greater than Ten Dollars ($10.00) per share for twenty (20) consecutive trading days or as provided in the provisions of the second succeeding paragraph below;

2) an additional one-third (1/3^rd) of the MSUs shall vest on the first trading date after shares of the Company’s common stock have traded at a price equal to or greater than Twelve Dollars ($12.00) per share for twenty (20) consecutive trading days; and

3) the remaining MSUs shall vest on the first trading date after the shares of the Company’s common stock have traded at a price equal to or greater than Fourteen Dollars ($14.00) per share for twenty (20) consecutive trading days.

Additionally, if the tranche of MSU’s subject to vesting pursuant to (1) above does not vest on or before November 20, 2027, then, with respect to such MSUs, the target trading price for the Company’s common stock will be increased to Twelve Dollars ($12.00) per share, such that the MSUs subject to (1) above will vest on the first trading date after shares of the Company’s common stock have traded at a price equal to or greater than Twelve Dollars ($12.00) per share for twenty (20) consecutive trading days.

Any MSUs that have not vested on or before the fourth anniversary of the grant date are immediately forfeited.

With respect to each MSU that becomes vested in accordance with the terms of the award agreement, the Grantee will be entitled to receive one share of common stock upon the settlement of the MSUs.

The Company estimated both the grant-date fair value of the MSU’s awards and the derived vesting periods using a Monte Carlo simulation with the following input assumptions:

Number of MSU's Granted	201,000
Grant Date	November 20, 2024
Grant Date Stock Price	$ 7.72
Expected Dividend Rate	0%
Expected Volatility	45%
Weighted average risk-free interest rate	4.27%
Contractual Term	4 years

Utilizing Monte Carlo simulation, the MSU’s grant date fair value was estimated to be $1,138,557 with a $5.66 weighted average grant date fair value per award and the derived vesting periods were estimated to be between 0.8 years and 1.7 years.

For the three months ended December 31, 2024, the Company recognized $117,108 of compensation expense related to MSU awards. As of December 31, 2024, unrecognized compensation expense of $1,021,449 associated with non-vested MSU’s will be recognized in future periods under the 2019 Plan. During the three months ended December 31, 2024, no MSUs vested or were forfeited.

The compensation expense related to stock options, and restricted stock awards issued to employees under the 2019 Plan was $206,527 and $155,581 for the three months ended December 31, 2024 and 2023, respectively.

The compensation expense under the 2019 Plan related to restricted stock awards issued to non-employee members of the Board was $73,026 and $50,135 for the three months ended December 31, 2024 and 2023, respectively.

Total compensation expense associated with the 2019 Plan was $396,661 and $205,716 for the three months ended December 31, 2024 and 2023, respectively.

As of December 31, 2024, unrecognized compensation expense of approximately $1,141,422 net of forfeitures, related to non-vested restricted stock under the 2019 Plan, will be recognized in future periods.

As of December 31, 2024, unrecognized compensation expense of approximately $459,721, net of forfeitures, related to non-vested stock options under the 2019 Plan, will be recognized in future periods.

For the three-months ended December 31, 2024, 361,613 diluted weighted-average shares outstanding were excluded from the computation of diluted earnings per share (“EPS”), because the effect would be anti-dilutive.