Note 10 - Share-based Compensation

12 Months Ended

Mar. 31, 2022

Notes to Financial Statements

Share-Based Payment Arrangement [Text Block]

10. SHARE-BASED COMPENSATION

As of March 31, 2022, 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 March 31, 2022, 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. No additional awards will be issued under the 2005 Plan or the 2004 Directors Plan.

On 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 March 31, 2022, there were 995,618 shares available for grant under the 2016 Plan.

On 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. At the 2021 Annual Meeting of Shareholders, the stockholders of the Company approved an amendment to the 2014 Directors Plan to increase the number of shares of common stock available for issuance under the plan by 300,000 shares. As of March 31, 2022, there were 287,695 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 March 31, 2022
	Authorized		Available		Outstanding
2016 Plan		1,300,000		995,618		199,465
2014 Directors Plan		650,000		287,695		12,000
2005 Plan		—		—		49,500
2004 Directors Plan		—		—		6,000
Total		1,950,000		1,283,313		266,965

Stock Options

All stock option grants made under the equity-based compensation plans were issued at exercise prices no less than the Company’s closing stock price on the date of grant. Options under the 2016 Plan, 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. No option can have a life in excess of ten (10) 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 $63,000, $29,000 and $133,000 for the years ended March 31, 2022, 2021 and 2020, respectively. In fiscal 2020, compensation expense included $109,000 related to a settlement agreement with a former executive.

A summary of option activity under the Company’s stock plans for the years ended March 31, 2022, 2021 and 2020 is presented below:

Option Activity	Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in years)		Aggregate Intrinsic Value
Outstanding at March 31, 2019		539,800		$	4.06		4.9	$	675,300
Granted		5,000			2.11
Exercised		(2,112	)		2.08
Forfeited		(104,388	)		4.58
Expired		(120,000	)		3.53
Outstanding at March 31, 2020		318,300		$	4.08		3.0	$	—
Granted		130,000			2.35
Exercised		(19,000	)		3.59
Forfeited		(55,000	)		3.13
Outstanding at March 31, 2021		374,300		$	3.64		3.9	$	129,700
Granted		50,000			2.96
Forfeited		(5,000	)		5.21
Expired		(166,800	)		3.84
Outstanding at March 31, 2022		252,500		$	3.34		6.5	$	159,650
Exercisable at March 31, 2022		110,833		$	4.35		3.9	$	44,816

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 $3.37, $3.30 and $2.06 at March 31, 2022, 2021 and 2020, respectively. The total intrinsic value of stock options exercised during fiscal years 2021 and 2020 were $6,000 and $1,000, respectively. No stock options were exercised during fiscal year 2022.

A summary of the Company’s non-vested options for the year ended March 31, 2022 is presented below:

Nonvested Options	Shares			Weighted Average Grant-Date Fair Value
Nonvested at March 31, 2021		125,000		$	1.19
Granted		50,000			1.60
Forfeited		(33,333	)		1.20
Nonvested at March 31, 2022		141,667		$	1.33

The weighted average grant-date fair value of stock options granted during fiscal years 2022, 2021 and 2020 was $80,000, $155,000 and $5,000, respectively. The total grant-date fair value of stock options that vested during fiscal years 2022, 2021 and 2020 were $40,000, $6,000 and $169,000, respectively.

The following table summarizes the weighted average characteristics of outstanding stock options as of March 31, 2022:

			Outstanding Options						Exercisable Options
Range of Exercise Prices ($)			Number of Shares		Remaining Life (Years)		Weighted Average Exercise Price		Number of Shares		Weighted Average Exercise Price
$2.11	-	$2.34		105,000		8.2	$	2.28		30,000	$	2.26
$2.35	-	$2.76		30,000		8.5	$	2.54		13,333	$	2.51
$2.77	-	$4.82		56,000		8.6	$	3.08		6,000	$	4.08
$4.83	-	$5.91		61,500		0.7	$	5.79		61,500	$	5.79
Total stock options				252,500		6.5	$	3.34		110,833	$	4.35

The range of fair value assumptions related to options granted during the years ended March 31, 2022, 2021 and 2020 were as follows:

	2022			2021			2020
Exercise Price	$	1.60		$	1.20		$	1.10
Volatility		58.23	%		54.44	%		50.61	%
Risk Free Rate		1.06	%		0.40	%		1.47	%
Vesting Period (in years)		3.0			3.0			0
Forfeiture Rate		0	%		0	%		0	%
Expected Life (in years)		6.0			6.2			6.9
Dividend Rate		0	%		0	%		0	%

Total unrecognized stock-based compensation expense related to all unvested stock options was $139,000 and $122,000, at March 31, 2022 and 2021, respectively, which is expected to be expensed over a weighted average period of 2.1 and 3.1 years, respectively.

Restricted Stock

Grants of fully vested restricted stock issued to Non-Employee Directors during fiscal years 2022, 2021 and 2020 was 55,438, 66,385 and 78,882 shares, respectively. Compensation expense recognized for fully vested restricted stock grants issued under the 2014 Directors Plan was $158,000, $158,000 and $158,000 for the fiscal years ended March 31, 2022, 2021 and 2020, respectively.

Restricted Stock Units (“RSUs”)

RSUs are service-based awards granted to eligible employees under our 2016 Plan. Compensation expense recognized for RSUs issued under the 2016 Plan was $123,000, $28,000 and $81,000 for the years ended March 31, 2022, 2021 and 2020, respectively. In fiscal 2020, compensation expense included $6,000 related to a settlement agreement with a former executive.

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, 2019		38,814		$	3.98
Granted		4,051		$	2.67
Vested		(24,483	)	$	3.76
Forfeited		(5,616	)	$	4.01
Nonvested restricted stock units at March 31, 2020		12,766		$	3.98
Granted		28,647		$	2.15
Vested		(9,135	)	$	3.97
Forfeited		(4,090	)	$	2.21
Nonvested restricted stock units at March 31, 2021		28,188		$	2.38
Granted		38,672		$	2.91
Vested		(46,963	)	$	2.85
Forfeited		(5,432	)	$	2.51
Nonvested restricted stock units at March 31, 2022		14,465		$	2.22

Total unrecognized stock-based compensation expense related to unvested restricted stock units was $19,000 and $42,000 at March 31, 2022 and 2021, respectively, which is expected to be expensed over a weighted average period of 1.2 years and 2.1 years, respectively.

On April 6, 2022, 850 RSUs were awarded to new employees of the Company. This award is valued at $3.03 per share, the closing market price of Cyanotech common stock on the grant date, and vests over a period of one year.

Common Stock

In fiscal 2020, the Company recorded $205,000 in compensation expense related to a settlement agreement with a former executive.