Note 9 – Share-based Compensation



We allocate share-based compensation expense to cost of sales, selling, general and administrative expense or research and development expense based on the award holder’s employment function. We recorded income tax benefits for share-based compensation expense of approximately $426,000 and $304,000 in fiscal 2018 and 2017, respectively.  For fiscal 2018 and 2017, we recorded share-based compensation expenses as follows:





Equity Plans



In March 2018, the Company’s stockholders approved the Company's 2018 Equity Incentive Plan (the “2018 Plan”).  A total of 2.0 million shares are authorized for issuance under the 2018 Plan.  As of September 30, 2018, 696,900 shares remain available for issuance under the 2018 Plan. 



In July 2017, the Company’s stockholders approved the Company's 2017 Equity Incentive Plan (the “2017 Plan”).  A total of 4.7 million shares are authorized for issuance under the 2017 Plan. As of September 30, 2018, 190,288 shares remain available for issuance under the 2017 Plan. The 2017 Plan replaced the Company's 2008 Stock Incentive Plan (the “2008 Plan”), and no further awards will be made under the 2008 Plan.



Stock Options



Each option grants the holder the right to purchase from us one share of our common stock at a specified price, which is generally the quoted market price of our common stock on the date the option is issued. Options generally vest on a pro-rata basis on each anniversary of the issuance date within three years of the date the option is issued. Options may be exercised after they have vested and prior to the specified expiry date provided applicable exercise conditions are met, if any. The expiry date can be for periods of up to ten years from the date the option is issued. The fair value of each option is estimated on the date of grant using the Black-Scholes option pricing model based on the assumptions established at that time. The Company accounts for forfeitures as they occur and does not estimate forfeitures as of the option grant date.



The following table outlines the weighted average assumptions for options granted during the years ended September 30, 2018 and 2017:



During the years ended September 30, 2018 and 2017, 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 recent 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 following table summarizes the stock options outstanding and exercisable at September 30, 2018: 





The aggregate intrinsic values in the table above are before income taxes and represent the number of in-the-money options outstanding or exercisable multiplied by the closing price per share of the Company’s common stock on the last trading day of the year ended September 30, 2018 of $1.42, less the respective weighted average exercise price per share at period end. 



As of September 30, 2018, the Company had unrecognized compensation expense of approximately $3.3 million related to unvested stock options. This expense is expected to be recognized over approximately 3 years.



The total intrinsic value of options exercised during the year ended September 30, 2018 was approximately $44,000. Cash received from options exercised in the year ended September 30, 2018 was $66,000.  No stock options were exercised during the year ended September 30, 2017.



During fiscal 2018, the Company modified stock options held by certain optionees upon termination of their employment by the Company, retirement from the board of directors or resignation from the board of directors. The aggregate amount of expense recognized in connection with these modifications for the year ended September 30, 2018 was approximately $362,000.  



Restricted Stock



The Company has issued restricted stock to employees, directors and consultants. Such issuances had vesting periods that range from one to three years. 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 date.



A summary of restricted stock activity for the year ended September 30, 2018 is presented in the table below:





The Company granted a total of 190,000 shares of restricted stock during the year ended September 30, 2017.  The fair value of the shares granted was approximately $181,000.  



Restricted Stock Units



In connection with the closing of the APP Acquisition, the Company issued 50,000 and 140,000 restricted stock units to an employee and an outside director, respectively, that vest on October 31, 2018. The restricted stock units will be settled in common stock issued under the 2017 Plan. As of September 30, 2018, there was approximately $10,000 of unrecognized compensation cost related to non-vested restricted stock units, which is expected to be recognized by October 31, 2018.



Stock Appreciation Rights



In connection with the closing of the APP Acquisition, the Company issued stock appreciation rights based on 50,000 and 140,000 shares of the Company’s common stock to an employee and an outside director, respectively, that vest on October 31, 2018. The stock appreciation rights have a ten-year term and an exercise price per share of $0.95, which was the closing price of a share of the Company’s common stock as quoted on NASDAQ on the date of grant. The stock appreciation rights will be settled in common stock issued under the 2017 Plan.  As of September 30, 2018, there was approximately $5,000 of unrecognized compensation cost related to non-vested stock appreciation rights, which is expected to be recognized by October 31, 2018.