Note 9 –Stock Based Compensation

The Company recorded share-based compensation associated with outstanding stock options and restricted stock grants during fiscal 2015, 2014 and 2013 of approximately $96,000, $5,000 and $60,000, respectively. No income tax benefit was recognized in the statements of comprehensive loss for share-based arrangements in any period presented.

Stock Option Plan

The Company has two share-based compensation plans as described below.

Qualstar adopted the 1998 Stock Incentive Plan, (the “1998 Plan”) under which incentive and nonqualified stock options and restricted stock could be granted for an aggregate of no more than 1,215,000 shares of common stock. Under the terms of the 1998 Plan, options could be issued at an exercise price of not less than 100% of the fair market value of common stock on the date of grant. These option awards typically vest based on four years of continuous service at a rate of 25% per year and terminate as specified in each option agreement, but terminate no later than ten years after the date of grant. The 1998 Plan expired in 2008 and no additional options may be granted under that plan. However, options previously granted under the 1998 Plan will continue under their terms.

Qualstar adopted the 2008 Stock Incentive Plan (the “2008 Plan”) under which incentive and nonqualified stock options and restricted stock may be granted for an aggregate of no more than 500,000 shares of common stock. Under the terms of the 2008 Plan, options may be issued at an exercise price of not less than 100% of the fair market value of common stock on the date of grant , or in the case of incentive stock options granted to a person who owns 10% or more of the total combined voting power of all classes of Qualstar stock, the exercise price must be at least equal to 110% of the fair market value of common stock on the date of grant. These option awards typically vest based on 4 years of continuous service at a rate of 25% per year and terminate as specified in each option agreement, but terminate no later than ten years after the date of grant. Under the 2008 Plan, 200,000 options were granted during 2015, there were no options granted during 2014, and 212,000 options were granted during fiscal year 2013.

The fair value of each option award is estimated on the date of grant using the Black-Scholes option valuation model that uses the assumptions, such as volatility, expected term and risk-free interest rate. Expected volatilities are based on the historical volatility of the Company’s stock. The Company uses historical data to estimate option exercise and employee termination in determining forfeiture rates and evaluates separate groups of employees by functional area that have similar historical exercise behavior. The expected term of options granted is estimated based on the vesting term of the award, historical employee exercise behavior, expected volatility of the Company’s stock and an employee’s average length of service. The risk-free interest rate used in this model correlates to a U.S. constant rate Treasury security with a contractual life that approximates the expected term of the option award. There were 200,000 options granted in fiscal year 2015.

The following table summarizes all stock option activity:

Options	Shares			Weighted Average Exercise Price per Share		Weighted Average Remaining Contractual Term (years)		Aggregate Intrinsic Value
Outstanding at June 30, 2014		74,000		$	2.89		4.31	$	—
Granted		200,000			1.25		—		—
Exercised		—			—		—		—
Forfeited or expired		(16,000	)		3.71		—		—
Outstanding at June 30, 2015		258,000			1.57		8.09		—
Exercisable at June 30, 2015		253,000		$	1.56		8.12	$	—

At June 30, 2015, the unrecognized compensation cost related to non-vested share-based compensation awards granted under the 2008 Plan, is $2,800. The total fair value of shares vested for fiscal years 2015, 2014, and 2013 was $56,900, $2,900, and $120,000, respectively.

Restricted Stock Awards

The following table summarizes all restricted stock awards activity:

Restricted Stock Awards	Shares		Weighted Average Fair Value Price per Share
Nonvested at June 30, 2014		100,000	$	1.61
Granted (1)		—
Vested		—
Forfeited or expired		—
Nonvested at June 30, 2015		100,000	$	1.61

(1)

Restricted stock was granted on April 1, 2014 to Daniel K. Jan of 100,000 shares to vest 33,333 on April 1, 2017; 33,333 to vest April 1, 2018 and 33,334 to vest April 1, 2019. The award is part of his employment agreement and the grant price is the closing price of the stock on April 1, 2014 of $1.61. The unvested shares are forfeited upon termination of his employment.

At June 30, 2015 the unrecognized compensation cost related to the non-vested share based compensation for restricted stock is $108,000.