Stock Options and Employee Stock Purchase Plan

On March 5, 2009, Stockholders approved adoption of the 2009 Stock Incentive Plan (the “2009 Plan”). The 2009 Plan, beginning October 1, 2009, replaced two former employee stock option plans that terminated coincident with the effectiveness of the 2009 Plan. On March 7, 2012, Stockholders approved an amendment to increase the number of shares of common stock subject to this plan by 600,000 and to increase the number of shares for the directors’ stock option plan by 50,000 shares. On March 6, 2014, Stockholders approved an amendment to increase the number of shares of common stock subject to the 2009 Plan by 800,000 to an aggregated total of 1,800,000 shares of common stock. The Company maintains a directors’ stock option plan under which options may be issued to purchase up to an aggregate of 100,000 shares of common stock. Each non-employee director, who is re-elected or who continues as a member of the board of directors on each annual meeting date and on each subsequent meeting of Stockholders, will be granted options to purchase 2,000 shares of common stock under the directors’ plan, or at other times or amounts at the discretion of the Board of Directors.

Each option entitles the holder to purchase one share of common stock at the specified option price. The exercise price of each option granted under the plans was set at the fair market value of the Company’s common stock at the respective grant date. Options vest at various intervals and expire at the earlier of termination of employment, discontinuance of service on the board of directors, ten years from the grant date or at such times as are set by the Company at the date of grant.

The Company has applied a graded (tranche-by-tranche) attribution method and expenses share-based compensation on an accelerated basis over the vesting period of the share award, net of estimated forfeitures.

The number of shares available for grant under these stockholder approved plans at September 30, is as follows:



	Qualified Employee Stock Option Plans		Director Stock Option Plans
Shares available for grant at September 30, 2014	853,766		19,500
Options granted	(307,119	)	(10,500	)
Options forfeited	39,384		8,000
Shares available for grant at September 30, 2015	586,031		17,000
Options granted	(233,381	)	(10,500	)
Options forfeited	14,239		—
Shares available for grant at September 30, 2016	366,889		6,500

The following table summarizes information with respect to outstanding stock options under all plans:



	Years Ended September 30,
	2016					2015
	Options			Weighted Average Exercise Price		Options			Weighted Average Exercise Price
Outstanding at beginning of year	1,449,409			$	10.03	1,240,941			$	10.31
Granted	243,881			7.16		317,619			9.22
Exercised	(2,968		)	6.74		(11,117		)	7.27
Forfeited	(87,500		)	11.02		(98,034		)	11.27
Outstanding at end of year	1,602,822			$	9.51	1,449,409			$	10.03
Exercisable at end of year	1,062,837					885,777
Weighted average fair value of options granted during the year	$	2.62				$	3.18

The options outstanding at September 30, 2016 have been segregated into three ranges for additional disclosure as follows:



	Options Outstanding				Options Exercisable
Exercise Prices	Options Outstanding at September 30, 2016	Weighted Average Remaining Contractual Life	Weighted Average Exercise Price		Options Exercisable at September 30, 2016	Weighted Average Exercise Price
$ 4.50 to $9.87	1,245,264	6.70	$	8.17	773,336	$	8.15
10.00 to 15.50	330,900	5.49	12.33		262,843	12.79
21.40 to 46.90	26,658	0.38	37.18		26,658	37.18
	1,602,822				1,062,837

As of September 30, 2016, there was $696 thousand of total unrecognized compensation cost related to non-vested stock-based compensation, with total forfeiture adjusted unrecognized compensation costs of $562 thousand. The cost is expected to be recognized over a weighted-average life of 1.6 years.

A summary of the status of the Company’s non-vested shares under all plans at September 30, 2016 and for the year then ended is presented below:



	Shares		Weighted Average Grant Date Fair Value
Non-vested shares at October 1, 2015	563,632		$	4.46
Granted	243,881		2.72
Vested	(253,304	)	3.45
Forfeited	(14,224	)	3.34
Non-vested shares at September 30, 2016	539,985		$	3.21

Stock-based compensation recorded in the year ended September 30, 2016 was $847 thousand. Stock-based compensation recorded in the year ended September 30, 2015 was $963 thousand. There was no cash received from exercises under all stock options plans and warrants for the year ended September 30, 2016. Cash received from exercises under all stock option plans and warrants for the years ended September 30, 2015 was $41 thousand. There were no tax benefits realized for tax deductions from option exercises for the years ended September 30, 2016 and 2015. The Company currently expects to satisfy stock-based awards with registered shares available to be issued.

The Company also has an Employee Stock Purchase Plan (Purchase Plan) under which an aggregate of 150,000 common shares may be issued. The Shareholders approved an amendment to increase the number of shares of common stock subject to the plan from 100,000 to 150,000 at the Company’s annual meeting in March 2014. All employees who have completed 90 days of employment with the Company on the first day of each offering period and customarily work twenty hours per week or more are eligible to participate in the Purchase Plan. An employee who, after the grant of an option to purchase, would hold common stock and/or hold outstanding options to purchase stock possessing 5% or more of the total combined voting power or value of the Company will not be eligible to participate. Eligible employees may make contributions through payroll deductions of up to 10% of their compensation. No participant in the Purchase Plan is permitted to purchase common stock under the Purchase Plan if such option would permit his or her rights to purchase stock under the Purchase Plan to accrue at a rate that exceeds $25,000 of the fair market value of such shares, or that exceeds 1,000 shares, for each calendar year. The Company makes a bi-annual offering to eligible employees of options to purchase shares of common stock under the Purchase Plan on the first trading day of January and July. Each offering period is for a period of 6 months from the date of the offering, and each eligible employee as of the date of offering is entitled to purchase shares of common stock at a purchase price equal to the lower of 85% of the fair market value of common stock on the first or last trading day of the offering period. A total of 23,708 shares are available to be issued under the plan. There were 14,708 and 14,067 shares purchased by employees during fiscal 2016 and 2015, respectively. The Company recorded stock compensation expense under this plan of $19 and $22 thousand during fiscal 2016 and 2015, respectively. Cash received from issuance of stock under this plan was $66 and $85 thousand during fiscal 2016 and 2015, respectively.