Note 6. Stock-Based Compensation

Stock Option Plans

The following table provides information about stock-based awards outstanding at January 31, 2015:

	Shares			Weighted Average Exercise Price		Weighted Average Fair Value
Options outstanding beginning of period		815,162		$	4.25	$	3.27
For the period August 1, 2014 through January 31, 2015
Granted		340,000		$	3.43	$	2.51
Forfeited		--			--		--
Exercised		(22,500	)	$	1.27	$	1.02
Options outstanding, end of period		1,132,662		$	4.06	$	3.09
Options exercisable, end of period		667,351		$	4.21	$	3.25

There were options to purchase 40,000 shares of the Company’s Common Stock granted in the second quarter of fiscal 2015. Each independent director receives an option to purchase 10,000 shares of the Company’s Common Stock each year in which he or she is elected, appointed, or continues to serve as a director pursuant to the Amended and Restated 2005 Non-Employee Directors’ Stock Option Plan. These options vest pro-ratably on a quarterly basis over the next year of service on the Board. These options also vest upon a change of control event. The Company recorded $40,000 and $79,000 of compensation expense for the three and six months ended January 31, 2015, respectively, and $42,000 and $84,000 of compensation expense for the three and six months ended January 31, 2014, respectively, with respect to the directors’ options.

During the second quarter of fiscal 2015, there were options to purchase 300,000 shares of Common Stock granted to the officers and employees of the Company. These options were granted in conjunction with the Company’s annual review of its long-term incentive compensation plan. These options will vest when the Company achieves $100 million of sales for an annual period. The Company recorded $24,000 of compensation expense for the three months ended January 31, 2015, related to these options. In addition, the Company recorded $66,000 and $132,000 of compensation expense for the three and six months ended January 31, 2015, respectively, and $166,000 and $232,000 of compensation expense for the three and six months ended January 31, 2014, respectively, for previously granted options. As a result of the King of Prussia facility closure, $101,000 of this compensation expense is included in exit costs for the three and six months ended January 31, 2014.

The Company expects to issue new shares as options are exercised. As of January 31, 2015, the future compensation cost expected to be recognized for currently outstanding stock options is approximately $278,000 for the remainder of fiscal 2015, $472,000 in fiscal 2016, $313,000 in fiscal 2017, $212,000 in fiscal 2018 and $40,000 in fiscal 2019.

The fair value of all options granted during the second quarter of fiscal 2015 was determined at the date of the grant using the Black-Scholes option-pricing model and the following assumptions:

Expected average risk-free interest rate		2.10 to 2.19%
Expected average life (in years)		10
Expected volatility		65.7%
Expected dividend yield		0.0%

The expected average risk-free rate is based on the 10-year U.S. treasury yield curve in December of 2014. The expected average life represents the period of time that the options granted are expected to be outstanding giving consideration to the vesting schedules, historical exercises and forfeiture patterns. Expected volatility is based on historical volatilities of the Company’s Common Stock. The expected dividend yield is based on historical information and the Board of Directors’ plan to reinvest available resources in the growth of the Company’s business for the foreseeable future.

The intrinsic value of the in-the-money stock options outstanding was $1.5 million and $698,000 at January 31, 2015 and 2014, respectively. The intrinsic value of in-the-money exercisable stock options was $545,000 and $384,000 at January 31, 2015 and 2014, respectively.

Restricted Stock Plans

Under the Company’s Second Amended and Restated Synergetics USA, Inc. 2001 Stock Plan (the “2001 Plan”), the Company’s common stock may be granted at no cost to certain employees and consultants of the Company. Certain plan participants are entitled to cash dividends and voting rights for their respective shares. Restrictions limit the sale or transfer of these shares during a vesting period whereby the restrictions lapse either pro-ratably over a three-year or four-year vesting period. These shares also vest upon a change of control event. As of January 31, 2015, there was approximately $467,000 of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted under the Company’s 2001 Plan, excluding the performance based awards discussed below. The cost is expected to be recognized over a weighted average period of four years, which is generally the vesting period. The following table provides information about restricted stock grants during the six month period ended January 31, 2015:

	Number of Shares			Weighted Average Grant Date Fair Value
Balance as of July 31, 2014		275,547		$	3.42
Granted		207,000		$	3.43
Forfeited		(2,834	)	$	4.74
Vested		(154,003	)	$	2.52
Relinquished for taxes		(27,014	)	$	2.52
Balance as of January 31, 2015		298,696		$	3.96

During the second quarter of fiscal 2015, 200,000 restricted shares of Common Stock were granted to the officers and employees of the Company in conjunction with the Company’s annual review of its long-term incentive compensation plan. These shares will vest when the Company achieves $100 million of sales for an annual period. As of January 31, 2015, there was approximately $656,000 of total unrecognized compensation cost related to these non-vested share-based compensation arrangements granted under this performance based grant. The cost is expected to be recognized over a weighted average period of 3.8 years from the date of grant, which is the Company’s estimate of when this goal will be achieved.