Stock-Based Compensation

6 Months Ended

Mar. 31, 2020

Share-based Payment Arrangement [Abstract]

Stock-Based Compensation

Note 6. Stock-Based Compensation

The Company has traditionally maintained incentive compensation plans that include provision for the issuance of equity-based awards. The Company established the 2008 Omnibus Equity Incentive Compensation Plan in 2008 (the “2008 Plan”) and has outstanding awards that were issued under the 2008 Plan. Subsequently, the 2008 Plan expired in 2018 and the Company established a new plan, the 2018 Omnibus Equity Incentive Plan (the “2018 Plan”) during the third fiscal quarter of 2018, pursuant to shareholder approval. Future awards will be issued under the 2018 plan.

Stock-based compensation is measured at the grant date, based on the calculated fair value of the award, and is recognized as an expense over the requisite service period (generally the vesting period of the grant). The Company recognizes the impact of forfeitures as forfeitures occur.

Our net loss for the two quarters ended March 31, 2020 and March 26, 2019 includes $149,000 and $221,000, respectively, of compensation costs related to our stock-based compensation arrangements.

Stock Option awards

The Company measures the compensation cost associated with stock option awards by estimating the fair value of the award as of the grant date using the Black-Scholes pricing model. The Company believes that the valuation technique and the approach utilized to develop the underlying assumptions are appropriate in calculating the fair values of the Company’s stock options and stock awards granted during the quarter ended March 31, 2020. Estimates of fair value are not intended to predict actual future events or the value ultimately realized by the employees who receive equity awards.

During the two quarters ended March 31, 2020, there were no incentive stock options granted.

During the two quarters ended March 26, 2019, the Company granted a total of 99,832 incentive stock options, from available shares under its 2018 Plan, with exercise prices between $4.66 and $5.00 and per-share weighted average fair values between $2.68 and $3.16.

In addition to the exercise and grant date prices of the stock option awards, certain weighted average assumptions that were used to estimate the fair value of stock option grants are listed in the following table:

	Quarter Ended March 26, 2019 Incentive and Non-Qualified Stock Options
Expected term (years)	7.5
Expected volatility	70.65% to 70.80%
Risk-free interest rate	3.01% to 3.10%
Expected dividends	-

We estimate expected volatility based on historical weekly price changes of our common stock for a period equal to the current expected term of the options. The risk-free interest rate is based on the United States treasury yields in effect at the time of grant corresponding with the expected term of the options. The expected option term is the number of years we estimate that options will be outstanding prior to exercise considering vesting schedules and our historical exercise patterns.

The following table summarizes stock option activity for the quarter ended March 31, 2020 under all plans:

	Shares			Weighted Average Exercise Price		Weighted Avg. Remaining Contractual Life (Yrs.)
Outstanding at beginning of year		703,164		$	3.53
Options exercised		(15,646	)	$	1.48
Forfeited		(45,963	)	$	3.78
Expired		(8,579	)	$	3.45
Outstanding March 31, 2020		632,976		$	3.56		5.6
Exercisable March 31, 2020		457,872		$	3.37		4.7

As of March 31, 2020, the aggregate intrinsic value of the outstanding and exercisable options was $3,000 and $3,000, respectively. Only options whose exercise price is below the current market price of the underlying stock are included in the intrinsic value calculation.

As of March 31, 2020, the total remaining unrecognized compensation cost related to non-vested stock options was $243,000 and is expected to be recognized over a weighted average period of approximately 1.9 years.

There were 15,646 stock options exercised that resulted in an issuance of 2,413 shares during the two quarters ended March 31, 2020 with no proceeds in conjunction with the termination of the Company’s CEO pursuant to a severance and separation agreement. There were 667 stock options exercised during the two quarters ended March 26, 2019 with proceeds of approximately $3,000.

Restricted Stock Units

During the two quarters ended March 31, 2020, the Company granted a total of 60,336 restricted stock units from available shares under its 2018 Plan. 46,336 shares were issued with a grant date fair market value of $1.54 which is equal to the closing price of the stock on the date of the grant, these restricted stock units vest three years following the grant date. 14,000 shares were issued with a grant date fair market value of $1.67 which is equal to the closing price of the stock on the date of the grant, these restricted stock units vested on their grant date.

During the two quarters ended March 26, 2019, the Company granted a total of 79,988 shares of restricted stock from available shares under its 2008 Plan, as amended. The shares were issued with a grant date fair market value of $3.95 which is equal to the closing price of the stock on the date of the grant. The restricted stock grant vests over three years following the grant date.

A summary of the status of non-vested restricted stock as of March 31, 2020 is presented below.

	Shares			Grant Date Fair Value Per Share
Non-vested shares at beginning of year		165,275			$2.70 to $3.95
Granted		60,336			$1.54 to $1.67
Forfeited		(8,992	)		$3.55 to $3.95
Vested		(100,499	)		$1.67 to $4.18
Non-vested shares at March 31, 2020		116,120			$2.70 to $4.18

As of March 31, 2020, there was $244,000 of total unrecognized compensation cost related to non-vested restricted stock. This cost is expected to be recognized over a weighted average period of approximately 1 years.