Note 7.Equity and Share-based Payments



In March 2008, the Company’s shareholders approved the 2008 Stock Incentive Plan which is utilized to provide equity opportunities and performance–based incentives to attract, retain and motivate those persons who make (or are expected to make) important contributions to the Company.  A total of 2 million shares are available for issuance under the plan. As of September 30, 2016, a total of 1,471,302 shares had been granted under the plan and not forfeited or are subject to outstanding commitments to issue shares under the Plan, of which 167,500 shares were in the form of stock options and the remainder were in the form of restricted stock or other share grants. 



Stock Option Plans



Under the Company’s previous share-based long-term incentive compensation plan, the 1997 Stock Option Plan, the Company granted non-qualified stock options to employees, directors, and consultants. There are no shares available for grant under this plan which expired on December 31, 2006. Options issued under this plan expire 10 years after the date of grant and generally vested 1/36 per month, with full vesting after three years. Under the Company’s 2008 Stock Incentive Plan, options issued in May 2009 expire 10 years after the date of grant and vest 1/36 per month, with full vesting after three years.



The Company granted 17,500 options to employees under the 2008 Stock Incentive Plan during fiscal year 2016.  Options issued under this plan expire in 10 years with vesting over a two-year period with one-half vesting on the first anniversary of the grant date and one-half vesting on the second anniversary of the grant date.  The Company did not grant any options during fiscal years 2015 or 2014.  Based on the Company’s history of prior forfeitures and future expectations it was determined that there would be no forfeiture rate used.



Compensation expense is recognized only for share-based payments expected to vest. Stock compensation expense related to options was approximately $5,000 for the year ended September 30, 2016.  No stock compensation expense related to options was recognized for the years ended September 30, 2015 and 2014.



The following table outlines the weighted average assumptions for options granted during the year ended September 30, 2016:







During the year ended September 30, 2016, the Company used historical volatility of our common stock over a period equal to the expected life of the options to estimate their fair value.  The dividend yield assumption is based on the Company’s history and expectation of future dividend payouts on the common stock.  The risk-free interest rate is based on the implied yield available on U.S. treasury zero-coupon issues with an equivalent remaining term.



The expected term of the options represents the estimated period of time until exercise and is based on the simplified method.  To value options granted for actual stock-based compensation, the Company used the Black-Scholes option valuation model.  When the measurement date is certain, the fair value of each option grant is estimated on the date of grant and is based on the assumptions used for the expected stock price volatility, expected term, risk-free interest rates and future dividend payments.



Option Activity



The following table summarizes the stock options outstanding and exercisable at September 30, 2016:







No stock options were exercised during the years ended September 30, 2016 or September 30, 2015.  During the year ended September 30, 2014, stock option holders exercised 60,000 stock options, 30,000 shares using the cashless exercise option available under the plan which entitled them to 16,963 shares of common stock and 30,000 shares using the cash exercise option available under the plan resulting in cash proceeds of $117,600.   



The aggregate intrinsic value in the table above is before income taxes, based on the Company’s closing stock price of $1.22 on the last day of business for the period ended September 30, 2016. The total intrinsic value of options exercised during the years ended September 30, 2016, 2015, and 2014,  was approximately $0,  $0, and $154,000, respectively.    As of September 30, 2016,  the Company had unrecognized compensation expense of $8,601 related to unvested stock options. These expenses will be recognized over approximately 1.5 years.



Restricted Stock



The Company issues restricted stock to employees, directors and consultants. Such issuances may have vesting periods that range from one to three years. In addition, the Company has issued stock awards to certain employees and directors that provide for future issuance contingent on continued employment or performance of services for periods that range from one to three years.



A summary of the non-vested stock activity for fiscal years 2016, 2015, and 2014 is summarized in the table below:







The Company granted a total of 101,250,  293,500 and 213,576 shares of restricted stock or shares issuable pursuant to promises to issue shares of common stock during the years ended September 30, 2016, 2015, and 2014, respectively. The stock granted during the year ended September 30, 2016 includes rights to receive a total of 13,498 shares, or at a holder’s election cash based on the fair market value of the shares, contingent on continued employment or service.  The fair value of the awards granted was approximately $153,000, $499,000 and $1,665,000 for the years ended September 30, 2016, 2015, and 2014, respectively. During the year ended September 30, 2016, holder’s elected to receive cash on a total of 27,666 shares based on the stock price at the time of vesting of $1.32.  All such shares of restricted stock vest and all such shares must be issued pursuant to the vesting period noted, provided the grantee has not voluntarily terminated service or been terminated for cause prior to the vesting or issuance date.  There were 0,  58,250 and 250 shares of restricted stock forfeited during the years ended September 30, 2016, 2015, and 2014, respectively. 



The Company recognized the fair value of the restricted stock or promises to issue shares of common stock that vested during the fiscal year as share-based compensation expense of approximately $495,000, $437,000 and $859,000 for the years ended September 30, 2016, 2015, and 2014, respectively, $29,000, $23,000 and $256,000 of which was included in accrued expenses at year end since the related shares have not yet been issued at September 30, 2016, 2015, and 2014, respectively. The share-based compensation expense was included in selling, general and administrative expenses for the respective periods.   The Company recorded a tax benefit for stock-based compensation expenses of approximately  $115,000,  $114,000, and $204,000 for the years ended September 30, 2016, 2015, and 2014, respectively.  The Company realized the tax benefit for stock-based compensation expenses, for the shares which vested, of approximately $141,000,  $190,000 and $0 for the years ended September 30, 2016, 2015, and 2014, respectively.  As of September 30, 2016, there was approximately  $287,000, representing approximately 190,000 unvested shares, of total unrecognized compensation cost related to non-vested restricted stock compensation arrangements granted under the incentive plans. This unrecognized cost will be recognized over the weighted average period of the next 1.89 years.



Common Stock Purchase Warrants



The Company did not issue any common stock purchase warrants in fiscal year 2016, 2015, or 2014.  There is no unrecognized compensation cost related to warrants as of September 30, 2016.   



At September 30, 2016 and 2015, there were no outstanding warrants.



Preferred Stock



The Company has 5,000,000 shares designated as Class A Preferred Stock with a par value of $.01 per share. There are 1,040,000 shares of Class A Preferred Stock - Series 1 authorized; 1,500,000 shares of Class A Preferred Stock- Series 2 authorized; and 700,000 shares of Class A Preferred Stock - Series 3 authorized. There were no shares of Class A Preferred Stock of any series issued and outstanding in fiscal 2016 or 2015.    The Company has 15,000 shares designated as Class B Preferred Stock with a par value of $0.50 per share. There were no shares of Class B Preferred Stock issued and outstanding in fiscal 2016 or 2015.