Note 7.         Stock-Based Compensation

We have three stock-based compensation plans. The 2006 Stock Incentive Plan was adopted in 2006 (“2006 Plan”) and had options granted under it through April 12, 2016. The 2016 Stock Incentive Plan was adopted in 2016 (“2016 Plan”) and had options granted under it through November 15, 2021. On October 11, 2021, the Board of Directors approved the 2021 Stock Incentive Plan (“2021 Plan”) and on December 2, 2021, our shareholders approved the 2021 Plan.

The Company recognizes compensation costs on a straight-line basis over the service period of the awards. There were no option awards granted in the three and six months ended June 30, 2023 nor in the three months ended June 30, 2022. Fair values of option awards granted in the six months ended June 30, 2022, were estimated using the Black-Scholes option pricing model under the following assumptions:

Determining the assumptions for the expected term and volatility requires management to exercise significant judgment. The expected term represents the weighted-average period that options granted are expected to be outstanding giving consideration to vesting schedules. Since the Company does not have an extended history of actual exercises, the Company has estimated the expected term using a simplified method which calculates the expected term as the average of the time-to-vesting and the contractual life of the awards. Given the limited public market for the Company’s stock, the Company has elected to estimate its expected volatility by benchmarking its volatility to that of several public company issuers that operate within its market segment. The guideline companies’ volatility was increased by a size adjustment premium of 30% to compensate for the difference in size between the guideline companies and the Company in its calculation.

There were 912,000 options with grant date fair values totaling $2,074,670 granted during the six months ended June 30, 2022. There were zero and 52,000 options exercised during the three months ended June 30, 2023, and 2022, respectively. There were 20,000 and 157,000 options exercised during the six months ended June 30, 2023 and 2022, respectively.  As of June 30, 2023, there was $591,946 of total unrecognized compensation cost related to nonvested share-based compensation arrangements granted under the stock incentive plans; that cost is expected to be recognized over a weighted-average period of 13 months.

Total compensation expense related to these plans was $88,159 and $358,936 for the three months ended June 30, 2023 and 2022, respectively, and $376,331 and $588,902 for the six months ended June 30, 2023 and 2022, respectively, and is included in selling, general and administrative expenses on the condensed consolidated statements of operations.