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Note 5 - Stock-based Compensation | 9 Months Ended
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Jun. 27, 2023
Notes to Financial Statements |
Share-Based Payment Arrangement [Text Block] |
Note 5. | Stock-Based Compensation
The Company has traditionally maintained incentive compensation plans that include 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”) during the 2018 fiscal year, which was approved by shareholders on May 24, 2018. Future awards will be issued under the 2018 Plan. On February 8, 2022 the Company’s shareholders approved a proposal to increase the number of shares available for issuance under the 2018 Plan from 900,000 to 1,050,000, which currently represents the maximum number of shares available for issuance under the 2018 Plan. 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 for the three quarters ended June 27, 2023 and June 28, 2022 includes $104,000 and $207,000, 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 this valuation method and the approach used to develop the underlying assumptions are appropriate in calculating the fair values of the stock options awards granted during the three quarters ended June 27, 2023. Estimates of fair value are not intended to predict actual future events or the value ultimately realized by the employees who receive 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 27, 2023 Incentive and Non-Qualified Stock Options |  |  | Three Quarters Ended June 28, 2022 Incentive and Non-Qualified Stock Options |
Expected term (years) |  |  | 7.5 |  |  |  |  | 6.5 |
Expected volatility |  | 60.0% | - | 60.2% |  |  |  | 61.31% |
Risk-free interest rate |  | 3.33% | - | 4.21% |  |  |  | 1.76% |
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 United States treasury yields effective at the time of grant corresponding to the expected term of the options. The expected term is the number of years we estimate that options will be outstanding prior to exercise considering vesting schedules and historic exercise patterns. The following table summarizes stock option activity for the three quarters ended June 27, 2023 under all plans:
|  | Shares |  |  | Weighted Average Exercise Price |  |  | Weighted Average Remaining Contractual Life (Yrs) |
Outstanding at beginning of year |  |  | 470,161 |  |  | $ | 3.97 |  |  |  |  |
Options granted |  |  | 45,000 |  |  | $ | 2.81 |  |  |  |  |
Options exercised |  |  | (2,000 | ) |  | $ | 2.31 |  |  |  |  |
Options Forfeited |  |  | (64,137 | ) |  | $ | 3.43 |  |  |  |  |
Outstanding June 27, 2023 |  |  | 449,024 |  |  | $ | 3.94 |  |  |  | 5.0 |
Exercisable June 27, 2023 |  |  | 334,103 |  |  | $ | 3.66 |  |  |  | 4.6 |
As of June 27, 2023, the aggregate intrinsic value of exercisable options was $296,000. Only options whose exercise price is below the current market price of the underlying stock are included in the intrinsic value calculation. As of June 27, 2023, the total remaining unrecognized compensation cost related to non-vested stock options was $104,000 and is expected to be recognized over a weighted average period of approximately 1.9 years. There were 45,000 stock options awarded during the three quarters ended June 27, 2023. 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. Prior to the end of the quarter ended June 27, 2023, these stock options were forfeited due to the officer’s employment separation. There were 2,000 stock options exercised resulting in the issuance of 2,000 shares during the three quarters ended June 27, 2023 with proceeds of approximately $5,000. There were 28,797 stock options exercised during the three quarters ended June 28, 2022 with proceeds of approximately $90,000. Restricted Stock Units There were 25,750 restricted stock units granted during the three quarters ended June 27, 2023 and there were 28,000 restricted stock units granted during the three quarters ended June 28, 2022. A summary of the status of non-vested restricted stock units as of June 27, 2023 is presented below.
|  | Shares |  |  | Grant Date Fair Value Per Share |
Non-vested units at beginning of year |  |  | 73,336 |  |  | $1.54 | to | $4.50 |
Units granted |  |  | 25,750 |  |  |  | $2.29 |  |
Units vested |  |  | (46,336 | ) |  |  | $1.54 |  |
Units forfeited |  |  | (2,750 | ) |  | $2.29 | to | $4.50 |
Non-vested units at June 27, 2023 |  |  | 50,000 |  |  | $2.29 | to | $4.50 |
As of June 27, 2023, there was $106,000 of total unrecognized compensation cost related to non-vested restricted stock units. This cost is expected to be recognized over a weighted average period of approximately 1.9 years. Restricted and Unrestricted Common Stock Awards No grants of restricted or unrestricted common stock were made during the three quarters ended June 27, 2023. 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 and resulted in the recognition of $40,000 of stock-based compensation expense.

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