NOTE 12

Stock-Based Compensation

In the first quarter of fiscal 2016, the Corporation’s Board of Directors approved the 2015 Stock Incentive Plan (“Plan”), which allows the granting of stock options and other equity awards to directors, officers, employees, and eligible independent contractors of the Corporation and is intended to retain and reward key employees’ performance and efforts as they relate to the Corporation’s long-term objectives and strategic plan. The Plan was subsequently approved by shareholders at the Corporation’s annual shareholder meeting on September 21, 2015. A total of 700,000 shares of Common Stock have been reserved for issuance under the Plan. Stock option awards are granted with an exercise price equal to the market price of the Corporation’s stock at the date of grant and vest over a period of time as determined by the Corporation at the date of grant up to the contractual ten-year life at which time the options expire. Restricted stock awards are priced no less than 100 percent of market price of the Corporation’s stock at the date of grant, and the awards made to date fully vest after five years.

Stock Options – The following tables summarize option activity for the years ended May 31, 2017 and 2016:


	Number of Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (years)		Aggregate Intrinsic Value (in thousands)
Options outstanding at June 1, 2015		—	$	—
Granted		225,000		3.28

Options outstanding at May 31, 2016		225,000	$	3.28		9.14	$	1,584

Granted		49,000		11.75

Options outstanding at May 31, 2017		274,000	$	4.79		8.40	$	128

Vested and exercisable options at May 31, 2017		45,000	$	3.28		8.14	$	89

The weighted average grant-date fair value of options granted during fiscal 2017 and 2016 were $7.58 and $2.19, respectively.


	Number of Shares			Weighted Average Grant-Date Fair Value
Non-vested options at May 31, 2015		—		$	—
Granted		225,000			2.19
Vested		—			—

Non-vested options at May 31, 2016		225,000		$	2.19
Granted		49,000			7.58
Vested		(45,000	)		2.19

Non-vested options at May 31, 2017		229,000		$	3.34

Stock-based compensation expense for fiscal 2017 and 2016 was approximately $144,000 and $82,000, respectively. Total unrecognized compensation expense related to stock options outstanding at May 31, 2017 was approximately $637,000 and is to be recorded over a weighted-average life of 3.4 years.

The Corporation records all stock-based payments, including grants of stock options, in the consolidated statements of operations based on their fair values at the date of grant. The Corporation currently uses the Black-Scholes option pricing model to determine the fair value of stock options. The determination of the fair value of stock options on the date of grant using an option-pricing model is affected by stock price as well as assumptions that include expected stock price volatility over the term of the awards, expected life of the awards, risk-free interest rate, and expected dividends.

The fair value of the options granted during fiscal 2017 and 2016 were estimated at the date of grant using the following weighted average assumptions:


	2017			2016
Volatility		64.3	%		55.8	%
Risk-free interest rate		2.14	%		2.22	%
Expected option life in years		7.50			9.72
Dividend yield		0	%		0	%

Volatility is estimated based on historical volatility measured monthly for a time period equal to the expected life of the option ending on the date of grant. The risk-free interest rate is determined based on observed U.S. Treasury yields in effect at the time of the grant for maturities equivalent to the expected life of the options. The expected option life (estimated average period of time the options will be outstanding) is estimated based on the expected exercise date of the options. The expected dividend yield of zero is estimated based on the dividend yield at the time of grant as adjusted for any expected changes during the life of the options.

Restricted Stock – In the third quarter of fiscal 2017, the Corporation issued 15,000 shares of restricted stock valued at approximately $216,000. No restricted stock was vested at May 31, 2017, and the non-vested shares had a weighted average grant date fair value of $14.40 per share. The value was determined using the market price of the Corporation’s common stock at the date of grant. The restricted stock’s value is to be expensed over a five-year vesting period using a straight-line method. Compensation expense for fiscal 2017 was approximately $17,000, and unrecognized compensation expense at May 31, 2017 was approximately $199,000.