NOTE 6

CAPITAL STOCK, STOCK PLANS, WARRANTS AND STOCK BASED COMPENSATION

Stock Option Plans

2003 Outside Directors Stock Plan (“2003 Plan”)

The Company’s 2003 Plan, as amended, provides for the grant of non-qualified stock options (“NQSOs”) to members of the Company’s Board of Directors (the “Board”) who are not employees of the Company or its subsidiaries (“Eligible Director”). The 2003 Plan also provides for the grant of an NQSO to purchase up to 10,000 shares of the Company’s Common Stock for each Eligible Director upon each re-election to the Board, and the grant of an NQSO to purchase up to 20,000 shares of the Company’s Common Stock upon initial election. NQSOs granted prior to July 20, 2021 have a vesting period of 6six months from the date of grant and a term of 10 years, with an exercise price equal to the closing trade price on the date prior to grant date. NQSOs granted on and after July 20, 2021 vest 25% per year, beginning on the first anniversary date of the grant and also have a term of 10 years, with an exercise price equal to the closing trade price on the date prior to grant date. Additionally, the 2003 Plan provides for the issuance to each Eligible Director a number of shares of the Company’s Common Stock in lieu of 65% or 100% (based on option elected by each director) of the fee payable to the Eligible Director for services rendered as a member of the Board. The number of shares issued to each Eligible Director is determined based on 75% of the market value as defined in the plan (the Company recognizes 100% of the market value of the shares issued). As of December 31, 2025, the 2003 Plan had available for issuance 83,971 shares.

2017 Stock Option Plan (“2017 Plan”)

The Company’s 2017 Plan, as amended, authorizes the grant of incentive stock options (“ISOs”) and non- NQSOs to officers and employees of the Company, including any employee who is also a member of the Board, as well as to consultants of the Company. The 2017 Plan’s authorized shares included an increase of 600,000 shares (the “Share Increase Proposal”) pursuant to the Second Amendment to the 2017 Plan, which had been submitted to, and approved by, the Company’s stockholders at the Company’s 2023 Annual meeting of Stockholders held on July 20, 2023. On November 13, 2025, the Company’s Board voted to rescind the Share Increase Proposal, in order to render moot a challenge to the Second Amendment to the 2017 Plan brought by a stockholder of the Company on November 25, 2024, pursuant to a putative class action against the Company and the individual members of the Board (see “Note 13 – Commitment and Contingencies – Legal Matter - Michael O’Neill” for further discussion of the legal matter in connection with the Second Amendment to the 2017 Plan.) Additionally, on November 13, 2025, the Board approved a new amendment to the 2017 Plan to increase the number of shares authorized under the 2017 Plan by 600,000 shares (the “New Amendment”). The New Amendment, which essentially replaces the rescinded Share Increase Proposal, is subject to approval by the Company’s stockholders either at a special meeting of the Company’s stockholders or at the Company’s 2026 Annual Meeting of Stockholders, provided any such approval must be obtained within 12 months of the Board’s approval of the New Amendment. No options have been granted under the rescinded Share Increase Proposal.

Under the 2017 Plan, consultants of the Company can only be granted NQSOs. The term of each stock option granted under the 2017 Plan shall be fixed by the Compensation and Stock Option Committee (the “Compensation Committee”), but no stock options will be exercisable more than ten years after the grant date, or in the case of an ISO granted to a 10% stockholder, five years after the grant date. The exercise price of any ISO granted under the 2017 Plan to an individual who is not a 10% stockholder at the time of the grant shall not be less than the fair market value of the shares at the time of the grant, and the exercise price of any ISO granted to a 10% stockholder shall not be less than 110% of the fair market value at the time of grant. The exercise price of any NQSOs granted under the plan shall not be less than the fair market value of the shares at the time of grant. As of December 31, 2025, the 2017 Plan had available for issuance 51,000 shares, which excludes the shares under the New Amendment, which is subject to approval by the Company’s stockholders as discussed above.

Stock Options to Employees and Outside Directors

In connection with the appointment of Mr. Troy Eshleman to the position of Chief Operating Officer (“COO”) by the Company’s Board on January 23, 2025, the Company granted to Mr. Eshleman an ISO for the purchase, under the Company’s 2017 Plan, of up to 50,000 shares of the Company’s Common Stock. The ISO has a six-year6 term and vests at 20% per year over a five-year5 period, commencing on the first anniversary of the grant date. The exercise price of the ISO is $10.70 per share, which equals the closing price of the Company’s Common Stock as quoted on NASDAQ on the grant date.

On July 24, 2025, the Company issued an NQSO to each of the Company’s seven reelected outside (non-management) directors for the purchase, under the Company’s 2003 Plan, of up to 10,000 shares of the Company’s Common Stock. Dr. Louis Centofanti and Mark Duff, each an executive officer of the Company as well as a director, were not eligible to receive an option under the 2003 Plan. Each NQSO granted has a term of ten years and vests at 25% per year over a four-year4 period, commencing on the first anniversary of the grant date. The exercise price of each NQSO is $12.23 per share, which was equal to the fair market value of the Company’s Common Stock on the day preceding the grant date, in accordance with the 2003 Plan.

On July 18, 2024, the Company issued a NQSO to each of the Company’s seven reelected outside (non-management) directors for the purchase, under the Company’s 2003 Plan, of up to 10,000 shares of the Company’s Common Stock. Dr. Louis Centofanti and Mark Duff, each an executive officer of the Company as well as a director, were not eligible to receive an option under the 2003 Plan. Each NQSO granted has a contractual term of ten years and vests at 25% per year over a four-year period, commencing on the first anniversary of the grant date. The exercise price of each NQSO is $10.20 per share, which was equal to the fair market value of the Company’s Common Stock on the day preceding the grant date, in accordance with the 2003 Plan.

On July 18, 2024, the Company granted ISOs to certain employees under the 2017 Plan, for the purchase of up to an aggregate of 35,500 shares of the Company’s Common Stock. Each ISO granted has a contractual term of six years and vests at 20% per year over a five-year period, commencing on the first anniversary of the grant date. The exercise price of the ISO is $10.05 per share, which was equal to the fair market value of the Company’s Common Stock on the date of grant.

On January 18, 2024, the Company granted ISOs to certain employees under the 2017 Plan, for the purchase of up to an aggregate of 45,000 shares of the Company’s Common Stock. Each ISO granted has a contractual term of six years and vests at 20% per year over a five-year period, commencing on the first anniversary of the grant date. The exercise price of the ISO is $7.75 per share, which was equal to the fair market value of the Company’s Common Stock on the date of grant.

During 2025, the Company issued an aggregate 47,882 shares of its Common Stock from cashless exercises of options for the purchase of 79,000 shares of the Company’s Common Stock ranging from $3.15 to $7.75 per share. Additionally, the Company issued an aggregate 42,900 shares of its Common Stock from cash exercises of options for the purchase of 42,900 shares of the Company’s Common Stock, at exercise prices ranging from $3.15 to $7.01 per share, resulting in proceeds of approximately $172,000. Income tax benefit associated with stock options exercised with cash during 2025 was approximately $19,000.

During 2024, the Company issued an aggregate 38,749 shares of its Common Stock from cashless exercises of options for the purchase of 64,000 shares of the Company’s Common Stock ranging from $3.15 per share to $7.005 per share. Additionally, the Company issued 33,700 shares of its Common Stock from the cash exercises of options for the purchase of 33,700 shares of the Company’s Common Stock, at exercise prices ranging from $3.70 per share to $7.005 per share, resulting in proceeds of approximately $187,000. Income tax benefit associated with stock options exercised with cash during 2024 was approximately $17,000.

The Company estimates fair value of stock options using the Black-Scholes valuation model. Assumptions used to estimate the fair value of stock options granted include the exercise price of the award, the expected term, the expected volatility of the Company’s stock over the option’s expected term, the risk-free interest rate over the option’s expected term, and the expected annual dividend yield. The fair value of the options granted during 2025 and 2024, and the related assumptions used in the Black-Scholes option model used to value the options granted were as follows:

 SCHEDULE OF STOCK OPTIONS VALUATION ASSUMPTIONS

The following table summarizes stock-based compensation recognized (within SG&A expenses) for fiscal years 2025 and 2024.

 SCHEDULE OF SHARE-BASED COMPENSATION, ALLOCATION OF RECOGNIZED PERIOD COSTS

Income tax benefits associated with stock-based compensation expense were approximately $96,000 and $71,000, respectively, for the years ended December 31, 2025, and 2024.

As December 31, 2025, the Company had approximately $1,910,000 of total unrecognized compensation costs related to unvested options for employees and directors. The weighted average period over which the unrecognized compensation costs are expected to be recognized is approximately 2.8 years.

Summary of Stock Option Plans

The summary of the Company’s total plans as of December 31, 2025, and 2024, and changes during the period then ended are presented as follows:

 SCHEDULE OF STOCK OPTIONS ROLL FORWARD

The summary of the Company’s nonvested options as of December 31, 2025, and changes during the period then ended are presented as follows:

 SCHEDULE OF NON VESTED OPTIONS

The total fair value of stock options vested during the year ended December 2025, and 2024 was approximately $734,000 and $573,000, respectively.

Warrant

In connection with the Company’s sales of its Common Stock in May 2024 and December 2024, the Company issued warrants to purchase an aggregate 188,038 shares of its Common Stock at exercise prices of $11.50 and $12.19 per share (see “Note 17 – Sales of Common Stock” for a discussion of these warrants). These warrants remained outstanding as of December 31, 2025.

The Company received proceeds of approximately $105,000 from the exercise of a warrant in the first quarter of 2024 for the purchase of up to 30,000 shares of the Company’s Common Stock at an exercise price of $3.51 per share. The warrant was issued in connection with a loan that the Company received from Mr. Robert Ferguson on April 1, 2019.

Common Stock Issued for Services

The Company issued a total of 50,162 and 46,947 shares of its Common Stock in 2025 and 2024, respectively, under the Company’s 2003 Plan to its outside directors as compensation for serving on its Board. As a member of the Board, each director elects to receive either 65% or 100% of the director’s fee in shares of the Company’s Common Stock. The number of shares received is calculated based on 75% of the fair market value of our Common Stock determined on the business day immediately preceding the date that the quarterly fee is due. The balance of each director’s fee, if any, is payable in cash. The Company recorded approximately $479,000 and $480,000 in years ended 2025 and 2024, respectively, in compensation expense (included in SG&A expenses) for the portion of director fees earned in the Company’s Common Stock.

Shares Reserved

As of December 31, 2025, the Company has reserved approximately 982,000 shares of its Common Stock for future issuance under all of the option arrangements.