9.	SHARE-BASED COMPENSATION

The Company accounts for share-based payment arrangements using fair value. If an award vests or becomes exercisable based on the achievement of a condition other than service, such as for meeting certain performance or market conditions, the award is classified as a liability. Liability-classified awards are remeasured to fair value at each balance sheet date until the award is settled. The Company currently has

liability-classified awards. Equity-classified awards, including grants of employee stock options, are measured at the grant-date fair value of the award and are

not

subsequently remeasured unless an award is modified. The cost of equity-classified awards is recognized in the statement of operations over the period during which an employee is required to provide the service in exchange for the award, or the vesting period. All of the Company

’s stock options are service-based awards, and because the Company’s stock options are “plain vanilla,” as defined by the U.S. Securities and Exchange Commission in Staff Accounting Bulletin

No.

107,

they are reflected only in equity and compensation expense accounts.

As of

June

30,

2017,

the Company had

two

equity-based compensation plans: the

2016

Equity Incentive Plan (the

2016

Plan) and the

2014

Independent Director Stock Option and Restricted Stock Grant Plan (the

“2014

Directors Plan”). The Company has also issued stock options, which remain outstanding as of

June 30, 2017,

under

two

equity-based compensation plans which have expired according to their terms: the

2005

Stock Option Plan (the

“2005

Plan”) and the

2004

Independent Director Stock Option and Stock Grant Plan (the

“2004

Directors Plan”). These plans allowed the Company to award stock options and shares of restricted common stock to eligible employees, certain outside consultants and independent directors.

additional awards will be issued under the

2005

Plan or the

2004

Directors Plan.

August 25, 2016,

the Company

’s shareholders approved the

2016

Plan as a successor to the

2005

Plan, authorizing the Board of Directors to provide incentive to the Company’s officers, employees and certain independent consultants through equity based compensation in the form of stock options, restricted stock, restricted stock units, stock appreciation rights and other stock based awards (together, “Stock Awards”) and performance shares and performance units (together, “Performance Awards”). Awards under the

2016

Plan are limited to the authorized amount of

1,300,000

shares, up to

600,000

of which are available for issuance in connection with Performance Awards and Stock Awards. As of

June 30, 2017,

there were

1,247,656

shares available for grant under the

2016

Plan.

August 28, 2014,

the Company

’s shareholders approved the

2014

Directors Plan authorizing the Board of Directors to provide incentive to the Company’s independent directors through equity based compensation in the form of stock options and restricted stock. Awards under the

2014

Directors Plan are limited to the authorized amount of

350,000

shares. As of

June 30, 2017,

there were

289,124

shares available for grant under the

2014

Directors Plan.

The following table presents shares authorized, available for future grant and outstanding under each of the Company

’s plans:

	As of June 30, 2017
	Authorized		Available		Outstanding

2016 Plan		1,300,000		1,247,656		52,344
2014 Directors Plan		350,000		289,124		12,000
2005 Plan		—		—		477,500
2004 Directors Plan		—		—		12,000
Total		1,650,000		1,536,780		553,844

Stock Options

All stock option grants made under the equity-based compensation plans were issued at exercise prices

less than the Company

’s closing stock price on the date of grant. Options under the

2005

Plan and

2014

Directors Plan were determined by the Board of Directors or the Compensation Committee of the Board of Directors in accordance with the provisions of the respective plans. The terms of each option grant include vesting, exercise, and other conditions are set forth in a Stock Option Agreement evidencing each grant.

option can have a life in excess of

ten

(

) years. The Company records compensation expense for employee stock options based on the estimated fair value of the options on the date of grant using the Black-Scholes option-pricing model. The model requires various assumptions, including a risk-free interest rate, the expected term of the options, the expected stock price volatility over the expected term of the options, and the expected dividend yield. Compensation expense for employee stock options is recognized ratably over the vesting term. Compensation expense recognized for options issued under all Plans was

$15,000

and

$77,000

for the

three

months ended

June

30,

2017

and

2016,

respectively. Compensation expense recognized for restricted stock issued under the

2014

Directors Plan was

$16,000

and

for the

three

months ended

June

30,

2017

and

2016,

respectively. All stock-based compensation has been classified as general and administrative expense in the condensed consolidated statement of operations.

A summary of option activity under the Company

’s stock plans for the

three

months ended

June

30,

2017

is presented below:

Option Activity	Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in years)		Aggregate Intrinsic Value
Outstanding at March 31, 201 7		503,000		$	4.10		4.7	$	145,946
Granted		—			—
Exercised		—			—
Forfeited		(1,500	)	$	3.11
Outstanding at June 30, 201 7		501,500		$	4.10		4.4	$	103,461
Exercisable at June 30, 201 7		482,000		$	4.07		4.3	$	103,461

The aggregate intrinsic value in the table above is before applicable income taxes and represents the excess amount over the exercise price optionees would have received if all options had been exercised on the last business day of the period indicated, based on the Company

’s closing stock price of

$3.55

for such day.

A summary of the Company

’s non-vested options for the

three

months ended

June

30,

2017

is presented below:

Nonvested Options	Shares		Weighted Average Grant-Date Fair Value
Nonvested at March 31, 201 7		19 ,500	$	2 .93
Granted		—		—
Vested		—		—
Forfeited		—		—
Nonvested at June 30, 201 7		19 ,500	$	2 .93

The following table summarizes the weighted average characteristics of outstanding stock options as of

June

30,

2017:

			Outstanding Options						Exercisable Options
Range of Exercise Prices			Number of Shares		Remaining Life (Years)		Weighted Average Price		Number of Shares		Weighted Average Price
$1.60	-	$3.70		1 24,620		2 .7	$	2.7 3		1 24,620	$	2.7 3
$3.71	-	$4.42		19 7,380		4 .3		3.8 3		1 97,380		3.8 3
$4.43	-	$5.40		95 ,000		5 .9		5.00		75 ,500		5.0 4
$5.41	-	$7.08		8 4,500		5 .4		5 .77		8 4,500		5 .77
Total stock options				501 ,500		4 .4	$	4. 10		482 ,000	$	4. 07

The range of fair value assumptions related to options granted during the year ended

March

31,

2017

were as follows:

	201 7
Exercise Price	$	4.08
Volatility		51.13	%
Risk Free Rate		0.60	%
Vesting Period (years)		0.5
Forfeiture Rate		0.00	%
Expected Life (in years)		1.00
Dividend Rate		0	%

As of

June

30,

2017,

total unrecognized stock-based compensation expense related to all unvested stock options was

$11,000,

which is expected to be expensed over a weighted average period of

0.3

years.

Subsequent to

June 30, 2017,

75,000

stock options were granted from the

2016

Plan.

Restricted Stock Units (“RSUs”)

RSUs are service-based awards granted to eligible employees under the

2016

Plan.

March 31, 2017,

25,000

restricted stock units (“RSUs”) were awarded to the CEO. This award is valued at

$3.85

per share, the closing market price of Cyanotech common stock on the grant date, and vest over a period of

three

years.

April 5, 2017,

28,074

RSUs were awarded to employees of the Company. This award is valued at

$3.92

per share, the closing market price of Cyanotech common stock on the grant date, and vests

over a period of

three

years.

The following table summarizes information related to awarded RSUs:

Nonvested Restricted Stock Units	Shares			Weighted Average Grant Price
Nonvested restricted stock units at March 31, 2017		25,000		$	3.85
Granted		28,074			3.92
Vested		—			—
Exercised		—			—
Forfeited		(730	)		3.92
Nonvested restricted stock units at June 30, 2017		52,344		$	3.89

As of

June

30,

2017,

total unrecognized stock-based compensation expense related to unvested restricted stock units was

$183,000,

which is expected to be expensed over a weighted average period of

2.8

years.