Note 12 - Stockholders' Equity

12 Months Ended

Sep. 30, 2023

Notes to Financial Statements

Equity [Text Block]

12. Stockholders’ Equity

Under our Certificate of Incorporation, we are authorized, subject to limitations prescribed by Delaware law and our Charter, to issue up to 1,000,000 shares of preferred stock in one or more series, to establish from time to time the number of shares to be included in each series and to fix the designation, powers, preferences and rights of the shares of each series and any of its qualifications, limitations or restrictions. Our Board of Directors can increase or decrease the number of shares of any series, but not below the number of shares of that series then outstanding, without any further vote or action by our stockholders. Our Board of Directors  may authorize the issuance of preferred stock with voting or conversion rights that could adversely affect the voting power or other rights of the holders of the common stock.

Series A Convertible Preferred Stock

The Company has designated 264,000 shares of its preferred stock as Series A Convertible Preferred Stock (“Series A Preferred Stock”). The shares of Series A Preferred Stock  may be converted, at the option of the holder at any time, into such number of shares of common stock equal to (i) the number of shares of Series A Preferred Stock to be converted, multiplied by the stated value of $10 and (ii) divided by the conversion price in effect at the time of conversion. As of  September 30, 2023 and 2022, the Company had no shares of Series A Preferred Stock outstanding.

Series B Convertible Preferred Stock

The Company has designated 5,000 shares of its preferred stock as Series B Convertible Preferred Stock (“Series B Preferred Stock”). The shares of Series B Preferred Stock  may be converted, at the option of the holder at any time, into such number of shares of common stock equal to (i) the number of shares of Series B Preferred Stock to be converted, multiplied by the stated value of $1,000 and (ii) divided by the conversion price in effect at the time of conversion. As of September 30, 2023 and 2022, the Company had no shares of Series B Preferred Stock outstanding. 

Series C Convertible Preferred Stock

The Company has designated 11,000 shares of its preferred stock as Series C Convertible Preferred Stock (“Series C Preferred Stock”). The shares of Series C Preferred Stock  may be converted, at the option of the holder at any time, into such number of shares of common stock equal to (i) the number of shares of Series C Preferred Stock to be converted, multiplied by the stated value of $1,000 and (ii) divided by the conversion price in effect at the time of conversion. Series C Preferred Stock vote on an as-converted basis along with shares of the Company’s common stock, are not entitled to receive dividends, unless specifically declared by our Board of Directors, and in the event of any liquidation, dissolution or winding up of the Company the holders of Series C Preferred Stock are entitled to receive in preference to the holders of common stock, Series A Preferred Stock, Series B Preferred Stock and any other stock, the amount equal to the stated value per share of Series C Preferred Stock. The Company  may not effect, and a holder will not be entitled to, convert the Series C Preferred Stock or exercise any Series C Preferred Warrants, which, upon giving effect to such conversion or exercise, would cause the aggregate number of shares of common stock beneficially owned by the Purchaser (together with its affiliates) to exceed 4.99% (or, at the election of the holder, 9.99%) of the number of shares of common stock outstanding immediately after giving effect to the exercise. As of  September 30, 2023 and 2022, the Company had 350 shares of Series C Preferred Stock outstanding, which were convertible into an aggregate of 38,889 shares of the Company’s common stock. 

Series D Convertible Preferred Stock

The Company has designated 4,200 shares of its preferred stock as Series D Convertible Preferred Stock (“Series D Preferred Stock”). The shares of Series D Preferred Stock  may be converted, at the option of the holder at any time, into such number of shares of common stock equal to (i) the number of shares of Series D Preferred Stock to be converted, multiplied by the stated value of $1,000 and (ii) divided by the conversion price in effect at the time of conversion. The Company  may not effect, and a holder will not be entitled to convert, the Series D Preferred Stock or exercise any Series D Preferred Warrants, which, upon giving effect to such conversion or exercise, would cause (i) the aggregate number of shares of common stock beneficially owned by the Purchaser (together with its affiliates) to exceed 4.99% (or, at the election of the holder, 9.99%) of the number of shares of common stock outstanding immediately after giving effect to the exercise. As of  September 30, 2023 and 2022, the Company had no shares of Series D Preferred Stock outstanding.

 

Amended and Restated Stock Incentive Plan

The Company has granted common stock, common stock warrants, and common stock option awards (the “Equity Awards”) to employees, consultants, advisors and former debt holders of the Company and to former owners and employees of acquired companies that have become employees of the Company. The Company’s Amended and Restated Stock Incentive Plan (the “Plan”) provided for the issuance of up to 5,000 shares of common stock. This Plan expired in August 2016. On April 29, 2016, the stockholders approved a new stock incentive plan, the 2016 Stock Incentive Plan (the “2016 Plan”). The 2016 Plan authorizes the award of incentive stock options, non-statutory stock options, restricted stock, unrestricted stock, performance shares, stock appreciation rights and any combination thereof to employees, officers, directors, consultants, independent contractors and advisors of the Company. The 2016 Plan provides for the issuance in the aggregate of up to 2,400,000 shares of common stock associated with awards granted under the Stock Incentive Plan. As of  September 30, 2023, there were 1,831,515 options outstanding and approximately 315,422 shares available for future issuance under the 2016 Plan.

Compensation Expense

Compensation expense is generally recognized on a graded accelerated basis over the vesting period of grants. Compensation expense is recorded in the consolidated statements of operations with a portion charged to Cost of revenue and a portion to Operating expenses, depending on the employee’s department.

During the years ended September 30, 2023 and 2022, compensation expense related to share-based payments was as follows:

	Year Ended September 30,
	2023		2022
Cost of revenue	$	7	$	26
Operating expenses		395		295
Change in fair value of contingent consideration, interest expense and other, net		169		157
Total	$	571	$	478

Change in fair value of contingent consideration, interest expense and other, net includes compensation expense related to the fair value of fully-vested stock options granted to directors in August 2023 and April 2022. As of September 30, 2023, the Company had approximately $0.7 million of unrecognized compensation costs related to unvested shared-based payments, which is expected to be recognized over a weighted-average period of 1.9 years.

Common Stock Warrants

The Company typically issues warrants to individual investors and placement agents to purchase shares of the Company’s common stock in connection with public and private placement fund raising activities. Warrants  may also be issued to individuals or companies in exchange for services provided to the Company. The warrants are typically exercisable six months after the issue date, expire in five years, and contain a cashless exercise provision and piggyback registration rights.

Montage Warrant - As additional consideration for a prior loan arrangement which was paid in full in a prior period not presented, the Company issued to Montage Capital an eight-year warrant (the “Montage Warrant”) to purchase the Company’s common stock at a price equal to $132.50 per share. The Montage Warrant contains an equity buy-out provision upon the earlier of (1) dissolution or liquidation of the Company, (2) any sale or distribution of all or substantially all of the assets of the Company, or (3) a “Change in Control” as defined within the meaning of Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934. Montage Capital has the right to receive an equity buy-out of $250. If the equity buy-out is exercised, the Montage Warrant will be surrendered to the Company for cancellation.

Series A and B and C Preferred Warrants - In  March 2019, in connection with the issuance of the Company’s Series C Preferred Stock, the Company issued warrants to purchase the Company’s common stock. These warrants were designated as (i) Series A Warrants with an initial term of 5.5 years and an exercise price of $4.00; (ii) Series B Warrants, which expired unexercised during the Company’s 2021 fiscal year, with an initial term of 24 months and an exercise price of $4.00; and (iii) Series C Warrants with an initial term of 5.5 years and an exercise price of $0.05 (collectively, hereinafter referred to as the “Series C Preferred Warrants”). The Company also issued warrants with an exercise price of $4.00 to purchase shares of the Company’s common stock to the Placement Agents. The Company  may not effect, and a holder will not be entitled to convert, the Series C Preferred Stock or exercise any Series C Preferred Warrants, which, upon giving effect to such conversion or exercise, would cause (i) the aggregate number of shares of common stock beneficially owned by the Purchaser (together with its affiliates) to exceed 4.99% (or, at the election of the holder, 9.99%) of the number of shares of common stock outstanding immediately after giving effect to the exercise.

As of  September 30, 2023, the number of shares issuable upon exercise of the (i) Series A Warrants were 872,625 shares; (ii) Series C Warrants were 13,738 shares; (iii) the Placement Agent Warrants issued in connection with the Series C Preferred Stock were 11,992 shares; and (iv) Investor Warrants were 41,621 shares.

Series D Preferred Warrants – In May 2021, in connection with the issuance of the Company’s Series D Preferred Stock, the Company issued warrants to purchase the Company’s common stock. These warrants consisted of (i) warrants issued to investors in Series D Preferred Stock to purchase in the aggregate up to 592,106 shares of common stock with an initial term of five and a half years which ends on  November 16, 2026 and an initial exercise price of $2.51 and (ii) Placement Agents warrants to purchase an aggregate of 179,536 shares of common stock with an initial term of five years which ends on  May 12, 2026 and an initial exercise price of $2.85. Collectively, these warrants are referred to as the “Series D Preferred Warrants.”

The Company  may not effect, and a holder will not be entitled to convert, the Series D Preferred Stock or exercise any Series D Preferred Warrants, which, upon giving effect to such conversion or exercise, would cause (i) the aggregate number of shares of common stock beneficially owned by the Purchaser (together with its affiliates) to exceed 4.99% (or, at the election of the holder, 9.99%) of the number of shares of common stock outstanding immediately after giving effect to the exercise. As of  September 30, 2023, no Series D Warrants have been exercised and the aggregate number of shares issuable upon exercise was 592,106 and 179,536 shares for investors and placement agents, respectively.

The Montage Warrants, Series A and C Preferred Warrants, the Placement Agent Warrants issued in connection with the Series C Preferred Stock, and the Series D Warrants were all determined to be derivative liabilities and are subject to remeasurement each reporting period (see Note 5).

During years ended September 30, 2023 and 2022, there were 0 and 26,605 Placement Agent Warrants exercised, respectively. 

Total warrants outstanding as September 30, 2023, were as follows:

Type	Issue Date	Shares		Price		Expiration
Financing (Montage)	10/10/2017		1,327	$	132.50	10/10/2025
Investors	10/19/2018		3,120	$	25.00	10/19/2023
Placement Agent	10/16/2018		10,000	$	31.25	10/16/2023
Investors	3/12/2019		41,621	$	4.00	10/19/2023
Investors	3/12/2019		872,625	$	4.00	9/12/2024
Investors	3/12/2019		13,738	$	0.05	9/12/2024
Placement Agent	3/12/2019		11,992	$	4.00	9/12/2024
Placement Agent	2/4/2021		31,564	$	3.88	2/4/2026
Investors	5/14/2021		592,106	$	2.51	11/16/2026
Placement Agent	5/14/2021		179,536	$	2.85	5/12/2026
Total			1,757,629

Warrant Issuances

The Company did not issue warrants to purchase common stock during the years ended September 30, 2023 and 2022.
 

Summary of Option and Warrant Activity and Outstanding Shares

During the year ended September 30, 2023, the Company, (i) issued 300,000 total options to its Chief Executive Officer at an exercise price of $1.18, which vest in 36 equal monthly installments over a three-year period, (ii) issued 50,000 total options to employees at an exercise price of $1.34, which vest ratably over a three-year period in equal quarterly installments, (iii) issued 152,000 total options to employees at an exercise price of $1.18, which vest ratably over a three-year period in equal quarterly installments, and (iv) issued 200,000 total options to the Board of Directors at an exercise price of $1.18, which vested immediately.

During the year ended September 30, 2022,the Company, (i) issued 5,000 total options at an exercise price of $3.99, which vest ratably over a 3-year period, (ii) issued 120,000 total options to Board members at an exercise price of $1.85, which vested immediately upon issuance, (iii) issued 362,000 total options to its Chief Executive Officer at an exercise price of $1.85, which vest ratably over a 3-year period, (iv) issued 48,000 total options to employees at an exercise price of $1.27, which vest ratably over a 3-year period and (v) issued 200,000 total shares of restricted stock to its Chief Executive Officer at grant-date fair value of $1.29, based upon the closing price of the Company’s common stock on the grant date, which vest quarterly over a 3-year period. All such options granted expire ten years from date of grant.

The weighted-average option fair values, as determined using the Black-Scholes option valuation model, and the assumptions used to estimate these values for stock options granted during the year ended September 30, 2023 and 2022 are as follows:

	2023						2022
	Board			Non-Board			Board			Non-Board
Weighted-average fair value per share option	$	0.84		$	0.90		$	1.30		$	1.40
Expected life (in years)		5.0			5.8			5.0			6.0
Volatility		88.5	%		90.7	%		89.2	%		95.0	%
Risk-free interest rate		4.1	%		4.0	%		2.8	%		2.8	%
Dividend yield		0.0	%		0.0	%		0.0	%		0.0	%

The expected option term is the number of years the Company estimates the options will be outstanding prior to exercise. Expected volatility is based on historical daily price changes of the Company’s common stock for a period equal to the expected life. The risk-free interest rate is based on the U.S. Treasury yield in effect at the time of grant. The expected dividend yield is zero since the Company does not currently pay cash dividends on its common stock and does not anticipate doing so in the foreseeable future.

A summary of combined restricted stock, stock option and warrant activity is as follows:

	Restricted Stock		Stock Options					Stock Warrants
						Weighted Average					Weighted Average
	Awards		Awards			Exercise Price		Warrants			Exercise Price
Outstanding, October 1, 2021		-		750,232		$	4.84		1,788,745		$	4.18
Granted		200,000		535,000			1.82		-			-
Exercised		-		(13,334	)		1.40		(26,605	)		3.88
Forfeited		-		(113,838	)		3.69		-			-
Expired		-		(133	)		937.88		(4,511	)		218.89
Outstanding, September 30, 2022		200,000		1,157,927		$	3.49		1,757,629		$	3.64
Granted		-		702,000			1.19		-			-
Exercised		-		-			-		-			-
Forfeited		-		(28,348	)		2.49		-			-
Expired		-		(64	)		1,873.44		-			-
Outstanding, September 30, 2023		200,000		1,831,515		$	2.56		1,757,629		$	3.64

There were 1,148,097 and 619,461 options vested and exercisable as of September 30, 2023 and 2022, respectively. The options outstanding at September 30, 2023 and 2022 had an aggregate intrinsic value of $0 and $2, respectively.

A summary of the status of unvested options is as follows:

				Weighted Average
				Grant-Date
	Shares			Fair Value
Unvested at October 1, 2022		538,466		$	1.37
Granted		702,000			0.89
Vested		(541,048	)		1.08
Forfeited/Cancelled		(16,000	)		1.75
Unvested at September 30, 2023		683,418		$	1.10

The following table summarizes information about outstanding stock options at September 30, 2023:

Exercise Price	Number of Options		Weighted Average Remaining Contractual Life (Years)		Weighted Average Exercise Price		Aggregate Intrinsic Value
Options outstanding		1,831,515		8.3	$	2.56	$	-
Options exercisable		1,148,097		7.8	$	3.23	$	-