15.Stock-Based Compensation

We maintain a 2004 Stock Incentive Plan (“2004 Plan”) covering substantially all company employees, non-employee directors and certain other key persons. The 2004 Plan is administered by a committee of our Board of Directors: The Management Development, Compensation and Stock Option Committee (“MDCSOC”).

Awards under the 2004 Plan may be in the form of stock options, stock appreciation rights, restricted stock or restricted stock units, performance share awards, director stock purchase rights and deferred stock units, or any combination thereof. The terms of the awards are determined by the MDCSOC, except as otherwise specified in the 2004 Plan.

Stock Options

Options outstanding under the 2004 Plan generally become exercisable at 25% or 33.3% per year beginning one year after the date of grant and expire ten years after the date of grant. Option prices from options granted under these plans must not be less than the fair market value of our stock on the date of grant. We use the Black-Scholes model for determining stock option valuations. The Black-Scholes model requires subjective assumptions, including future stock price volatility and expected time to exercise, which affect the calculated values. The expected term of option exercises is derived from historical data regarding employee exercises and post-vesting employment termination behavior. The risk-free rate of return is based on published U.S. Treasury rates in effect for the corresponding expected term. The expected volatility is based on historical volatility of our stock price. These factors could change in the future, which would affect the stock-based compensation expense in future periods.

We recognized operating expense for non-cash stock-based compensation costs related to stock options in the amount of $87,000 and $55,000 in the three-month periods ended September 30, 2018 and 2017, respectively. As of September 30, 2018, the total remaining unrecognized compensation cost related to non-vested stock options amounted to approximately $239,000. We expect to recognize this cost over a weighted average vesting period of 1.6 years.

We granted no stock options in each of the three-month periods ended September 30, 2018 and 2017, respectively. The estimated fair value as of the date options were granted during the periods presented, using the Black-Scholes option-pricing model, is shown in the table below.

We received approximately $191,000 and zero in cash from option exercises under our share-based payment arrangements for the three-month periods ended September 30, 2018 and 2017, respectively.

Restricted Stock and Restricted Stock Units

Our restricted stock and restricted stock units under the 2004 Plan generally have been awarded by four methods as follows:

(1)

Awards that are earned based on achieving certain individual and financial performance goals during the initial fiscal year with either a subsequent one-year service vesting period or with a one-third vesting requirement on the first, second and third anniversaries of the issuance, provided the individual’s employment has not terminated prior to the vesting date and are freely transferable after vesting;

(2)

Awards that are earned based on achieving certain revenue and operating income results with a subsequent one-third vesting requirement on the first, second and third anniversaries of the issuance provided the individual’s employment has not terminated prior to the vesting date and are freely transferable after vesting;

(3)

Awards to non-management members of our Board of Directors with a subsequent one-third vesting requirement on the first, second and third anniversaries of the issuance provided the service of the non-management member of our Board of Directors has not terminated prior to the vesting date and are freely transferable after vesting, and

(4)

Awards that are granted with a one-third vesting requirement on the first, second and third anniversaries of the issuance provided the individual’s employment has not terminated prior to the vesting date and are freely transferable after vesting, including restricted stock units granted as part of the Fiscal Year 2018 Long-Term Incentive Compensation Plan.

The grant date fair value associated with granted restricted stock is calculated in accordance with ASC 718 “Compensation – Stock Compensation”. Compensation expense related to restricted stock awards is based on the closing price of our Common Stock on the grant date authorized by our MDCSOC, multiplied by the number of restricted stock and restricted stock unit awards expected to be issued and vested, and is amortized over the combined performance and service periods. The non-cash stock-based compensation expense recorded for restricted stock and restricted stock unit awards for the three-month periods ended September 30, 2018 and 2017, was $55,000 and $76,000, respectively. As of September 30, 2018, the total remaining unrecognized compensation cost related to the restricted stock and restricted stock unit awards is approximately $223,000. We expect to recognize this cost over a weighted average vesting period of 2.0 years.

A summary of the status of restricted stock and restricted stock unit awards outstanding at September 30, 2018 is presented in the table below.

				Weighted Average
	Nonvested			Grant Date
	Shares			Fair Value
Non-vested at June 30, 2018		77,570		$	7.77
Granted		-			-
Vested		(9,741	)		7.34
Forfeited or Expired		-			-
Non-vested at September 30, 2018		67,829		$	7.83

Performance Stock Units

During the second quarter of fiscal 2018, our Management Development, Compensation and Stock Option Committee granted certain employees Performance Share Units (“PSUs”) as part of the Fiscal Year 2018 Long-Term Incentive Compensation Plan. The Performance Measures were defined by the Committee as a specific Target level of Revenue and Operating Income Before Incentive Compensation for each of the following: fiscal year 2018, fiscal year 2019 and fiscal year 2020. Up to one third of the PSUs can be earned each year is determined based upon actual performance levels achieved in that fiscal year. One half of the award earned each fiscal year is based upon the achievement of the two Performance Targets in that fiscal year, provided that a minimum level of Operating Income Before Incentive Compensation is achieved for that fiscal year. Before Incentive Compensation the actual award level for each fiscal year can range from 50% to 150% (for Revenue Target) or 75% to 200% (for Operating Income Target) of the target awards depending on actual performance levels achieved in each fiscal year compared to that year’s target. Before Incentive Compensation If operating income is less than 75% of the targeted Operating Income, for the year, then no PSU’s will vest for that year and the PSU’s vesting that year will expire. For fiscal 2018, actual Revenue and Operating Income Before Incentive Compensation exceed the Targets, resulting in 161.5% of the target level of PSU’s vesting in fiscal 2018 vesting.

The non-cash stock-based compensation expense recorded for performance share unit awards for the three-month period ended September 30, 2018 was $65,000. As of September 30, 2018, the total remaining unrecognized compensation cost related to performance share unit awards is approximately $186,000. We expect to recognize this cost over a weighted average vesting period of 1.3 years.

A summary of the status of the PSUs outstanding at September 30, 2018 is presented in the table below.


			Weighted Average
	Nonvested		Grant Date
	Shares		Fair Value
Non-vested at June 30, 2018		39,350	$	7.95
FY 2018 Performance results		8,054		7.95
Granted		-		-
Vested		-		-
Forfeited or Expired		-		-
Non-vested at September 30, 2018		47,404	$	7.95