Note

Share-Based Compensation

As of

March

31,

2018,

the Company had

two

equity-based compensation plans: the

2016

Equity Incentive Plan (the

2016

Plan) and the

2014

Independent Director Stock Option and Restricted Stock Grant Plan (the

“2014

Directors Plan”). The Company has also issued stock options, which remain outstanding as of

March 31, 2018,

under

two

equity-based compensation plans which have expired according to their terms: the

2005

Stock Option Plan (the

“2005

Plan”) and the

2004

Independent Director Stock Option and Stock Grant Plan (the

“2004

Directors Plan”). These plans allowed the Company to award stock options and shares of restricted common stock to eligible employees, certain outside consultants and independent directors.

additional awards will be issued under the

2005

Plan or the

2004

Directors Plan.

August 25, 2016,

the Company’s shareholders approved the

2016

Plan as a successor to the

2005

Plan, authorizing the Board of Directors to provide incentive to the Company’s officers, employees and certain independent consultants through equity based compensation in the form of stock options, restricted stock, restricted stock units, stock appreciation rights and other stock based awards (together, “Stock Awards”) and performance shares and performance units (together, “Performance Awards”). Awards under the

2016

Plan are limited to the authorized amount of

1,300,000

shares, up to

600,000

of which are available for issuance in connection with Performance Awards and Stock Awards. As of

March 31, 2018,

there were

1,131,992

shares available for grant under the

2016

Plan.

August 28, 2014,

the Company’s shareholders approved the

2014

Directors Plan authorizing the Board of Directors to provide incentive to the Company’s independent directors through equity based compensation in the form of stock options and restricted stock. Awards under the

2014

Directors Plan are limited to the authorized amount of

350,000

shares. As of

March 31, 2018,

there were

231,623

shares available for grant under the

2014

Directors Plan.

The following table presents shares authorized, available for future grant and outstanding under each of the Company’s plans:

	As of March 31, 201 8
	Authorized		Available		Outstanding

2016 Plan		1,300,000		1,131,992		159,675
2014 Directors Plan		350,000		231,623		12,000
2005 Plan		—		—		445,400
2004 Directors Plan		—		—		12,000
Total		1,650,000		1,363,615		629,075

Stock Options

All stock option grants made under the equity-based compensation plans were issued at exercise prices

less than the Company’s closing stock price on the date of grant. Options under the

2016

Plan,

2005

Plan and

2014

Directors Plan were determined by the Board of Directors or the Compensation Committee of the Board of Directors in accordance with the provisions of the respective plans. The terms of each option grant include vesting, exercise, and other conditions are set forth in a Stock Option Agreement evidencing each grant.

option can have a life in excess of

ten

(

) years. The Company records compensation expense for employee stock options based on the estimated fair value of the options on the date of grant using the Black-Scholes option-pricing model. The model requires various assumptions, including a risk-free interest rate, the expected term of the options, the expected stock price volatility over the expected term of the options, and the expected dividend yield. Compensation expense for employee stock options is recognized ratably over the vesting term. Compensation expense recognized for options issued under the Plans was

$62,000,

$154,000

and

$587,000

for the years ended

March

31,

2018,

2017

and

2016,

respectively.

A summary of option activity under the Company’s stock plans for the years ended

March

31,

2018,

2017

and

2016

is presented below:

Option Activity	Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in years)		Aggregate Intrinsic Value
Outstanding at March 31, 2015		1,433,216		$	4.08		6.4	$	6,221,909
Granted		6,000			5.91
Exercised		(21,800	)		3.26
Forfeited		(732,416	)		3.59
Outstanding at March 31, 2016		685,000		$	4.65		5.7	$	566,323
Granted		6,000			4.08
Exercised		(18,000	)		2.77
Forfeited		(170,000	)		6.44
Outstanding at March 31, 2017		503,000		$	4.10		4.7	$	145,946
Granted		120,000			3.53
Exercised		(29,150	)		2.59
Forfeited		(3,700	)		4.50
Expired		(750	)		1.60
Outstanding at March 31, 2018		589,400		$	4.06		4.9	$	675,300
Exercisable at March 31, 2018		469,400		$	4.20		3.8	$	486,900

The aggregate intrinsic value in the table above is before applicable income taxes and represents the excess amount over the exercise price optionees would have received if all options had been exercised on the last business day of the period indicated, based on the Company’s closing stock price of

$5.10,

$3.85,

$4.98

and

$8.42

March 31, 2018,

2017,

2016

and

2015

respectively. The total intrinsic value of stock options exercised during fiscal years

2018,

2017

and

2016

were

$67,000,

$23,000

and

$58,000,

respectively.

A summary of the Company’s non-vested options for the year ended

March

31,

2018

is presented below:

Nonvested Options	Shares			Weighted Average Grant-Date Fair Value
Nonvested at March 31, 2017		19,500		$	2.93
Granted		120,000			1.81
Vested		(19,500	)		2.93
Nonvested at March 31, 2018		120,000		$	1.81

The weighted average grant-date fair value of stock options granted during fiscal years

2018,

2017

and

2016

was

$67,000,

$5,000

and

$7,000,

respectively. The total grant-date fair values of stock options that vested during fiscal years

2018,

2017

and

2016

were

$57,000,

$332,000

and

$651,000,

respectively.

The following table summarizes the weighted average characteristics of outstanding stock options as of

March

31,

2018:

			Outstanding Options						Exercisable Options
Range of Exercise Prices			Number of Shares		Remaining Life (Years)		Weighted Average Exercise Price		Number of Shares		Weighted Average Exercise Price
$1.60	-	$3.70		172,200		5.3	$	3.05		97,200	$	2.81
$3.71	-	$4.42		239,700		4.7	$	3.83		194,700	$	3.83
$4.43	-	$5.40		95,000		5.2	$	5.00		95,500	$	5.00
$5.41	-	$7.08		82,500		4.6	$	5.77		82,500	$	5.77
Total stock options				589,400		4.9	$	4.06		469,400	$	4.20

The range of fair value assumptions related to options granted during the years ended

March

31,

2018,

2017

and

2016

were as follows:

	201 8			201 7			201 6
Exercise Price	$	3.83		$	4.08		$	5.91
Volatility		51.91	%		51.13	%		50.00	%
Risk Free Rate		2.50	%		0.60	%		0.22	%
Vesting Period (in years)		3.0			0.5			0.5
Forfeiture Rate		0.00	%		0.00	%		0.00	%
Expected Life (in years)		6.00			1.00			1.00
Dividend Rate		0	%		0	%		0	%

As of

March

31,

2018,

total unrecognized stock-based compensation expense related to all unvested stock options was

$181,000,

which is expected to be expensed over a weighted average period of

2.3

years.

Restricted Stock

Grants of fully vested restricted stock issued to Non-Employee Directors was

57,501,

19,117

and

13,198

shares for the

three

years ended

March

31,

2018,

2017

and

2016,

respectively. Compensation expense recognized for fully vested restricted stock grants issued under the

2014

Directors Plan was

$276,000,

$78,000

and

$78,000

for the

three

years ended

March

31,

2018,

2017

and

2016,

respectively.

Restricted Stock Units (“RSUs”)

RSUs are service-based awards granted to eligible employees under our

2016

Plan. Compensation expense recognized for RSUs issued under the

2016

Plan was

$62,000,

and

for the years ended

March

31,

2018,

2017

and

2016,

respectively.

The following table summarizes information related to awarded RSUs:

Nonvested Restricted Stock Units	Shares			Weighted Average Grant Price
Nonvested restricted stock units at March 31, 2017		25,000		$	3.85
Granted		28,074		$	3.92
Vested		(8,333	)	$	3.85
Exercised		—		$	—
Forfeited		(5,066	)	$	3.92
Nonvested restricted stock units at March 31, 2018		39,675		$	3.89

As of

March

31,

2018,

total unrecognized stock-based compensation expense related to unvested restricted stock units was

$122,730.

April 5, 2018,

1,474

RSUs were awarded to employees of the Company. This award is valued at

$5.25

per share, the closing market price of Cyanotech common stock on the grant date, and vests over a period of

two

years.