NORTECH SYSTEMS INC Stock Compensation Disclosure
In May 2017, the shareholders approved the 2017 Stock Incentive Plan which authorized the issuance of shares. An additional , , and shares were authorized by the shareholders in March 2020, May 2022, May 2023 and May 2024, respectively.
Stock Options
We estimate the fair value of share-based awards on the date of grant using an option-pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as expense in the consolidated statements of operations and comprehensive (loss) income over the requisite service periods. Because share-based compensation expense is based on awards that are ultimately expected to vest, share-based compensation expense will be reduced to account for estimated forfeitures. We estimate forfeitures at the time of grant and revise the estimate, if necessary, in subsequent periods if actual forfeitures differ from those estimates.
We used the Black-Scholes option-pricing model to calculate the fair value of option-based awards. Our determination of fair value of option-based awards on the date of grant using the Black-Scholes model is affected by our stock price as well as assumptions regarding several subjective variables. These variables include, but are not limited to, our expected stock price, volatility over the term of the awards, risk-free interest rate, and the expected life of the options. The risk-free interest rate is based on a treasury instrument whose term is consistent with the expected life of our stock options. The expected volatility and holding period are based on our historical experience. For all grants, the amount of compensation expense recognized has been adjusted for an estimated forfeiture rate, which is based on historical data. Weighted average stock option fair value assumptions and the weighted average grant date fair value of stock options granted were as follows:
| 2024 | 2023 | |||||||
| Stock option fair value assumptions: | ||||||||
| Risk-free interest rate | - | % | - | % | ||||
| Expected life (years) | .0 | |||||||
| Dividend yield | % | % | ||||||
| Expected volatility | % | % | ||||||
| Weighted average grant date fair value of stock options granted | $ | $ | ||||||
Total compensation expense related to stock options was $ and $ for the years ended December 31, 2024 and 2023, respectively. As of December 31, 2024, there was $ of unrecognized compensation which will vest and expense over the next years.
| Shares | Weighted- Average Exercise Price Per Share | Weighted- Average Remaining Contractual Term (in years) | Aggregate Intrinsic Value | |||||||||||||
| Outstanding – January 1, 2023 | $ | |||||||||||||||
| Granted | ||||||||||||||||
| Exercised | ) | |||||||||||||||
| Forfeited | ) | |||||||||||||||
| Outstanding – December 31, 2023 | $ | $ | ||||||||||||||
| Granted | ||||||||||||||||
| Exercised | ) | |||||||||||||||
| Forfeited | ) | |||||||||||||||
| Outstanding – December 31, 2024 | $ | $ | ||||||||||||||
| Exercisable on December 31, 2024 | $ | $ | ||||||||||||||
Restricted Stock Units (“RSUs”)
Total compensation expense related to the RSUs were $ and $ for the years ended December 31, 2024 and 2023, respectively. Total unrecognized compensation expense related to the RSUs was $, which will vest over the next years.
| Shares | Weighted- Average Remaining Vesting Term (in years) | Aggregate Intrinsic Value | ||||||||||
| Outstanding – January 1, 2023 | ||||||||||||
| Granted | ||||||||||||
| Vested | ) | |||||||||||
| Forfeited | ) | |||||||||||
| Outstanding – December 31, 2023 | $ | |||||||||||
| Granted | ||||||||||||
| Vested | ) | |||||||||||
| Forfeited | ) | |||||||||||
| Outstanding – December 31, 2024 | $ | |||||||||||
About Stock Compensation Disclosures
Stock-based compensation disclosures detail the equity awards granted to employees and executives — including stock options, restricted stock units (RSUs), and performance shares — along with the valuation methods and assumptions used to expense them. This section reveals the true cost of talent retention and the alignment between management incentives and shareholder interests.
Key signals: total unrecognized compensation expense and its expected recognition period signal future earnings headwinds from already-granted awards. For stock options, examine Black-Scholes assumptions — expected volatility, risk-free rate, and expected term — as understating any of these reduces reported compensation expense. Compare stock compensation expense as a percentage of revenue against peers to assess dilution cost. Watch vesting schedules for acceleration clauses tied to change-of-control events. Performance-based awards with undemanding targets may indicate weak governance. Add back stock compensation to operating cash flow to calculate a more conservative free cash flow figure.