Stock-based Compensation, Equity Grants, and Warrants

Stock-based compensation expense

Options issued under equity incentive plans are designated as either an incentive stock or a non-statutory stock option. No option is granted with a term of more than 10 years from the date of grant. Exercisability of option awards may depend on achievement of certain performance measures determined by the Compensation Committee of our Board. Shares issued upon option exercise are newly issued shares. As of March 31, 2020, there were 1.1 million shares available for grant.

Stock-based compensation expense, shown in the table below, is recorded in general and administrative expenses included in our statements of operations:



		(in thousands)				(in thousands)
		Three Months Ended				Six Months Ended
	Ref	March 31,				March 31,
		2020		2019		2020		2019
DLH employees		$	95	$	67	$	211	$	129
Non-employee directors	(a)	87		132		173		263
Total stock option expense		$	182	$	199	$	384	$	392

Ref (a): Equity grants of restricted stock units, in accordance with DLH compensation policy for non-employee directors were made in the first quarter of fiscal 2020 and in total 77,500 restricted stock units were issued and outstanding.

Unrecognized stock-based compensation expense



		(in thousands)
		March 31,
	Ref	2020
Unrecognized expense for DLH employees	(a)	$	1,102
Unrecognized expense for non-employee directors		173
Total unrecognized expense		$	1,275

Ref (a): Compensation expense for the portion of equity awards for which the requisite service has not been rendered is recognized as the requisite service is rendered. The compensation expense for that portion of awards has been based on the grant-date fair value of those awards as calculated for recognition purposes under applicable guidance. On a weighted average basis, this expense is expected to be recognized within the next 3.82 years.

Stock option activity for the six months ended March 31, 2020

The aggregate intrinsic value in the table below represents the total pretax intrinsic value (i.e., the difference between the Company’s closing stock price on the last trading day of the period and the exercise price, times the number of shares) that would have been received by the option holders had all option holders exercised their in the money options on those dates. This amount will change based on the fair market value of the Company’s stock.



						(in years)
						Weighted
				Weighted		Average	(in thousands)
		(in thousands)		Average		Remaining	Aggregate
		Number of		Exercise		Contractual	Intrinsic
	Ref	Shares		Price		Term	Value
Options outstanding, September 30, 2019		2,134		$	4.36	5.9	$	4,815
Granted	(a)	250		$	4.17	—	—
Exercised/canceled		(505	)	$	1.04	—	—
Options outstanding, March 31, 2020		1,879		$	4.60	6.6	$	2,878

Ref (a): Utilizing a volatility of 50% along with assumptions of a 10-year term and the aforementioned 10-day stock price threshold results in an indicated range of value of the Options granted during the quarter ended December 31, 2019, as follows using the Monte Carlo Method.



									Volatility
									50%
						Vesting		Expected
		Strike		Stock		Threshold		Term	Calculated
Grant Date	Ref	Price		Price		Price		(Years)	Fair Value
October 18, 2019	(a)	$	4.17	$	4.17	Service		10	$	2.54
October 18, 2019		$	4.17	$	4.17	$	8.00	10	$	2.56
October 18, 2019		$	4.17	$	4.17	$	10.00	10	$	2.53
October 18, 2019		$	4.17	$	4.17	$	12.00	10	$	2.51

Notes:
Results based on 100,000 simulations

Ref (a): Options granted vest after completion of a one year service period.

Stock options shares outstanding, vested and unvested for the period ended



		(in thousands)
		March 31,	September 30,
	Ref	2020	2019
Vested and exercisable	(a)	955	1,300
Unvested	(b)	924	834
Options outstanding		1,879	2,134

Ref (a): Weighted average exercise price of vested and exercisable shares was $1.68 and $1.51 at March 31, 2020 and September 30, 2019, respectively. Aggregate intrinsic value was approximately $2.5 million and $3.9 million at March 31, 2020 and September 30, 2019, respectively. Weighted average contractual term remaining was 3.5 and 3.8 years at March 31, 2020 and September 30, 2019, respectively.

Ref (b): Certain awards vest upon satisfaction of certain performance criteria.