9. STOCK-BASED COMPENSATION

The Company follows guidance issued by ASC 718, “Accounting for Stock-Based Compensation”. Compensation cost is recognized for all awards granted and modified based on the grant date fair value of the awards. Net income for each of the periods ended March 31, 2015, 2014, and 2013, includes $699, $424, and $446, respectively, net of tax (using the effective tax rate excluding the impact of the research & development tax credit), of stock-based compensation expense. Stock-based compensation expense is recorded in selling, general and administrative expense. Additional compensation cost will be recognized as new options are awarded. The Company has not made any material modifications to its stock-based compensation plans.

The Company maintains the 1999 Long-Term Incentive Plan (the “1999 Plan”), the 2004 Long-Term Incentive Plan (the “2004 Plan”), the 2006 Long-Term Incentive Plan (the “2006 Plan”), and the 2012 Incentive Compensation Plan (the “2012 Plan” and together with the 1999 Plan, the 2004 Plan and the 2006 Plan collectively, the “Plans”).

Under the terms of the 2012 Plan, 750,000 shares of the Company’s common stock may be granted as stock options or awarded as restricted stock to officers, non-employee directors, certain employees, and other key individuals of the Company through October 2022. Under the terms of the 2006 Plan, 500,000 shares of the Company’s common stock may be granted as stock options or awarded as restricted stock to officers, non-employee directors, and certain employees of the Company through July 2016. Under the terms of the 2004 Plan, 200,000 shares of the Company’s common stock may be granted as stock options or awarded as restricted stock to officers, non-employee directors, and certain employees of the Company through September 2014. The 1999 Plan expired in July 2009, and no further grants or awards may be made under this plan. Under the 1999 Plan, unexercised options granted in fiscal year 2006 remain outstanding.

Under each of the Plans, option exercise prices equal the fair market value of the common shares at their respective grant dates. Options granted to officers and employees expire no later than 10 years after the date of the grant. In most circumstances prior to fiscal year 2014, options granted to directors, officers, and employees generally vest ratably over three years beginning one year after the date of the grant. In certain circumstances, including a change of control of the Company (as defined in the various Plans), option vesting may be accelerated.

Pursuant to the terms of an employment agreement, effective May 22, 2012, between the Company and Brad Pedersen, President and Chief Executive Officer of the Company, the Company granted to Mr. Pedersen an option to purchase 400,000 shares, which option has an exercise price of $8.10.

Pursuant to the terms of an employment agreement, effective June 16, 2014, between the Company and Serge Dupuis, Chief Financial Officer and Treasurer of the Company, the Company granted to Mr. Dupuis an option to purchase 200,000 shares, which option has a weighted average grant date fair value equal to $12.78. This option was reported in the Company’s Current Report on Form 8-K filed on June 17, 2014.

As noted above, in connection with the hiring of Serge Dupuis as the Company’s Chief Financial Officer and Treasurer, the terms of the Company’s employment offer to Mr. Dupuis included a commitment to award him an option to purchase 200,000 shares of common stock of the Company (the “Dupuis Option”). At the time of the issuance of the award, the Company and Mr. Dupuis entered into an option grant agreement indicating that the option would be subject to, and the option shares would be allocated from, the Company’s 2012 Incentive Compensation Plan (the “2012 Plan”). On July 3, 2014, the Company determined that the allocation of that number of option shares from the 2012 Plan would be in excess of the 2012 Plan’s per person, per year share limit, and, therefore, 50,000 of the option shares would need to be allocated from the Company’s 2006 Incentive Compensation Plan or the Company would need to modify the grant to be an “inducement grant” in order for the Company to fulfill its obligations to Mr. Dupuis. As a result, on July 7, 2014 the Company and Mr. Dupuis agreed to modify the terms of his award such that the number of shares allocated from the 2012 Plan in respect of the Dupuis Option is 150,000 and the remaining 50,000 shares would be allocated from and subject to the Company’s 2006 Incentive Compensation Plan.

On August 18, 2014, in connection with the hiring of Bradley Repp, Vice President of Product Development, the Company granted to Mr. Repp an option to purchase 200,000 shares of our common stock, which option has a weighted average grant date fair value equal to $10.40. This award to Mr. Repp was made outside of the Company’s stockholder approved equity incentive plans and was approved by the Incentive and Compensation Committee of the Company’s Board of Directors, as an inducement material to Mr. Repp entering into employment with the Company pursuant to Section 711(a) of the NYSE MKT Company Guide. This option was reported in the Company’s Current Report on Form 8-K filed on August 18, 2014.

The Black-Scholes option-pricing model uses dividend yield, volatility, risk-free rate, expected term, and forfeiture assumptions to value stock options and was used to value 55,000 of the total 440,000 options granted in fiscal 2015, 19,000 of the total 158,000 options granted in fiscal 2014, and 77,000 of the total 551,000 options granted in fiscal 2013. The Black-Scholes weighted-average value at each grant date per option granted in fiscal 2015 was $4.61, $3.85, and $3.72, and in fiscal 2014 was $3.03 and $3.01. In fiscal 2013, the Black-Scholes weighted average values per option granted were $3.05, $3.02, $3.02 and $2.82. Expected volatilities are based on historical volatility of the Company’s common stock and other factors, and the risk-free rate for periods within the option’s contractual life is based on the U.S. Treasury yield curve at the time of the grant. The Company uses historical data to estimate the expected option term and assumed no forfeitures because of the limited number of employees at the executive and senior management levels who receive stock options, past employment history, and current stock price projections.

The Company used the following assumptions to estimate the fair value of option grants under the Black-Scholes method:

	Dividend yield			Volatility			Risk-free interest rate			Expected term of options (in years)		Forfeiture adjustment
2015 $4.61 value per option		0.0	%		30.0	%		2.1	%		7.0		0.0	%
2015 $3.85 value per option		0.0	%		30.9	%		2.2	%		7.0		0.0	%
2015 $3.72 value per option		0.0	%		30.9	%		2.2	%		7.0		0.0	%
2014 $3.03 value per option		0.0	%		31.2	%		1.3	%		7.0		0.0	%
2014 $3.01 value per option		0.0	%		31.2	%		1.3	%		7.0		0.0	%
2013 $3.05 value per option		0.0	%		34.0	%		1.2	%		7.0		0.0	%
2013 $3.02 value per option		0.0	%		35.5	%		1.2	%		7.0		0.0	%
2013 $3.02 value per option		0.0	%		34.9	%		1.1	%		7.0		0.0	%
2013 $2.82 value per option		0.0	%		30.9	%		1.3	%		7.0		0.0	%

The remaining 385,000 options granted in fiscal 2015 had a weighted-average value per option of $3.05, $2.49, and $2.49. The remaining 139,000 options granted in fiscal 2014 had a weighted-average value per option of $1.90 and $1.71. The remaining 474,000 options granted in fiscal 2013 had a weighted-average value per option of $1.86, $1.75, and $1.75 at the grant date. These valuations used a Monte Carlo simulation because the option vesting was based on service and market conditions. Expected volatilities are based on the historical volatility of the Company’s common stock and other factors, and the risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of the grant. The Company uses the option contractual life for the expected option term and assumes a forfeiture rate using historical data for Company officers who receive stock options.

The Company used the following assumptions to estimate the fair value of option grants under the Monte Carlo simulation:

	2015 $3.05 value per option		2015 $2.49 value per option		2015 $2.49 value per option		2014 $1.90 value per option			2014 $1.71 value per option			2013 $1.86 value per option			2013 $1.75 value per option			2013 $1.75 value per option
Dividend yield	0.0	%	0.0	%	0.0	%		0.0	%		0.0	%		0.0	%		0.0	%		0.0	%
Volatility	32.3	%	33.7	%	33.7	%		34.9	%		34.9	%		34.0	%		34.9	%		30.1	%
Risk-free interest rate	2.6	%	2.5	%	2.5	%		1.9	%		1.9	%		1.8	%		1.1	%		1.3	%
Expected term of options (in years)	10.0		10.0		10.0			10.0			10.0			10.0			10.0			10.0
Forfeiture adjustment	1.4	%	1.2	%	1.2	%		1.1	%		1.8	%		0.2	%		0.2	%		0.2	%
Suboptimal behavior factor	1.6		1.6		1.6			1.7			1.7			1.9			1.9			1.9

The following table summarizes stock option activity under all plans:

	Number Of Shares			Aggregate Intrinsic Value		Approximate Remaining Contractual Term (Years)		Weighted- Average Exercise Price
Outstanding at March 31, 2012		759,577		$	800		7	$	8.17
Granted		551,000			—		10	$	8.07
Exercised		(46,411	)	$	35		—	$	6.07
Canceled or expired		(32,668	)		—		—	$	8.51
Outstanding at March 31, 2013		1,231,498		$	720		7	$	8.20
Granted		158,000			—		10	$	8.58
Exercised		(130,548	)	$	253		—	$	6.98
Canceled or expired		(407,785	)		—		—	$	8.84
Outstanding at March 31, 2014		851,165		$	1,516		8	$	8.15
Granted		440,000			—		10	$	11.45
Exercised		(88,833	)	$	339		—	$	7.46
Canceled or expired		(46,333	)		—		—	$	8.20
Outstanding at March 31, 2015		1,155,999		$	1,480		8	$	9.26
Options exercisable at March 31, 2015		597,000		$	1,143		7	$	8.60
Unvested options expected to become exercisable after March 31, 2015		558,999		$	391		9	$	10.23
Shares available for future option grants at March 31, 2015 (a)		281,376

(a)	May be decreased by restricted stock grants.

There were 440,000 and 158,000 options granted during fiscal 2015 and fiscal 2014, respectively. The weighted average grant date fair value of options issued during the year ended March 31, 2015 and 2014 was $11.45 and $8.58, respectively.

Cash received from stock option exercises during the fiscal 2015 and fiscal 2014 were approximately $662 and $912, respectively. The aggregate intrinsic value of options exercised during fiscal 2015 was approximately $339. The intrinsic value of stock options is the amount by which the market price of the stock on the date of exercise exceeded the market price of stock on the date of grant. There was no tax benefit generated to the Company from options granted prior to April 1, 2006 and exercised during fiscal 2015.

During fiscal 2015, 2014, and 2013, compensation expense associated with stock options was $820, $468, and $626, respectively, before taxes of $270, $173 and $283, respectively, and was recorded in selling, general, and administrative expense. As of March 31, 2015, there was approximately $867 of unrecognized compensation cost related to stock options granted but not yet vested that are expected to become exercisable. This cost is expected to be recognized over a weighted-average period of approximately two years.

Except as otherwise authorized by the Board of Directors, it is the general policy of the Company that the stock underlying the option grants consists of authorized and unissued shares available for distribution under the applicable Plans. Under the Plans, the Incentive and Compensation Committee of the Board of Directors (made up of independent directors) may at any time offer to repurchase a stock option that is exercisable and has not expired.

A summary of restricted stock award activity under all plans is as follows:

	Number of Shares			Weighted – Average Grant Date Fair Value
Non-vested at March 31, 2012		21,094		$	8.54
Granted		23,934		$	7.52
Vested		(20,903	)	$	8.56
Cancelled		—		$	—
Non-vested at March 31, 2013		24,125		$	7.51
Granted		31,196		$	8.91
Vested		(24,125	)	$	7.51
Cancelled		(1,389	)	$	8.35
Non-vested at March 31, 2014		29,807		$	8.93
Granted		27,930		$	10.07
Vested		(22,924	)	$	9.11
Cancelled		(4,649	)	$	9.24
Non-vested at March 31, 2015		30,164		$	8.81

Restricted stock awards are utilized both for director compensation and awards to officers and employees, and are distributed in a single grant of shares which are subject to forfeiture prior to vesting and have voting and dividend rights from the date of issuance. Other than the restricted stock granted in fiscal 2012 and fiscal 2013, outstanding restricted stock awards to officers and employees have forfeiture and transfer restrictions that lapse ratably over three years beginning one year after the date of the award. Restricted stock awards granted to officers and employees in fiscal 2012 contain forfeiture and transfer restrictions that lapse after six months.

Restricted stock awards granted to non-employee directors prior to fiscal 2012 contained forfeiture provisions that lapse after one year and transfer restrictions that lapse six months after the person ceases to be a director. In certain circumstances, including a change of control of the Company as defined in the various Plans, forfeiture lapses on restricted stock may be accelerated.

The fair value of restricted stock awards is based on the market price of the stock at the grant date and compensation cost is amortized to expense on a straight-line basis over the requisite service period as stated above. The Company expects no forfeitures during the vesting period with respect to unvested restricted stock awards granted. During fiscal 2015, 2014, and 2013, compensation expense related to restricted stock awards recorded in selling, general and administrative expenses was $223, $204, and $187, respectively, before taxes of $73, $76, and $84, respectively. As of March 31, 2015, there was approximately $168 of unrecognized compensation cost related to non-vested restricted stock awards. This cost is expected to be recognized over a period of approximately one year.