. SHARE-BASED COMPENSATION

Stock Option Plans

December 31, 2020,

the Company had

two

equity incentive plans. The

2005

Equity Incentive Plan (

“2005

Equity Plan”) was terminated with respect to new grants in

March 2015,

but remains in effect for grants issued prior to that time. The Amended and Restated

2015

Equity Incentive Plan (

“2015

Equity Plan”) was approved by the Company's Board of Directors on

December 6, 2016

and by the Company's stockholders on

March 14, 2017.

The

2015

Plan authorizes the issuance stock options, restricted stock, stock appreciation rights, restricted stock units and performance awards, to an aggregate of

5,000,000

new shares of common stock to employees, directors, advisors or consultants. At

December 31, 2020,

there were options and restricted stock units outstanding covering

115,000

and

2,942,018

shares of common stock under the

2005

Equity Plan and

2015

Equity Plan, respectively and

483,480

shares of common stock available for grant for a total of

3,540,498

currently available under the

two

equity plans.

Share-Based Compensation

The Company's employee stock options have various restrictions that reduce option value, including vesting provisions and restrictions on transfer and hedging, among others, and are often exercised prior to their contractual maturity.

There were

215,000

stock options granted during the

three

months ended

December 31, 2020.

There were

1,133,727

stock options granted during fiscal

2020.

The weighted average estimated fair value of employee stock options granted during the

three

months ended

December 31, 2020

was calculated using the Black-Scholes option-pricing model with the following weighted average assumptions (annualized percentages):

	Three months ended
	December 31,
	2020			2019
Volatility		48.6	%		40.2	%
Risk-free interest rate		0.6	%		1.5	%
Forfeiture rate		3.8	%		10.0	%
Dividend yield		0.0	%		0.0	%
Expected term		6.9			5.0

Expected volatility is based on the historical volatility of the Company's common stock over the period commensurate with the expected term of the options. The risk-free interest rate is based on rates published by the Federal Reserve Board. The contractual term of the options was

seven

years. The expected term is based on observed and expected time to post-vesting exercise. The expected forfeiture rate is based on past experience and employee retention data. Forfeitures are estimated at the time of the grant and revised in subsequent periods if actual forfeitures differ from those estimates. Such revision adjustments to expense will be recorded as a cumulative adjustment in the period in which the estimate is changed. The Company did

not

pay a dividend in fiscal

2021

or in fiscal

2020.

As of

December 31, 2020,

there was approximately

$1,067

of total unrecognized compensation costs related to outstanding employee stock options. This amount is expected to be recognized over a weighted average period of

2.6

years. To the extent the forfeiture rate is different from what the Company anticipated, stock-based compensation related to these awards will be different from the Company's expectations.

Performance-Based Stock Options

August 1, 2016,

the Company awarded a performance-based stock option (PVO) to purchase

750,000

shares of the Company's common stock to a key executive, with a contractual term of

seven

years. At the grant date, there were

375,000

performance-based stock options assigned to performance criteria within each of fiscal

2019

and

2020.

Vesting is based upon the achievement of certain performance criteria for each of fiscal

2019

and

2020

including a minimum free cash flow margin and net revenue targets. Additionally, vesting is subject to the executive being employed by the Company at the time the Company achieves such financial targets.

The Company determined that certain performance conditions related to the

2019

and

2020

performance criteria were achieved.

187,500

options related to the

2019

performance criteria vested and

375,000

options related to the

2020

performance criteria vested. The Company recorded a total of

$459

in stock-based compensation expense for these options through

September 30, 2020,

in selling, general and administrative expenses in the consolidated statement of operations.

October 4, 2019,

the Company awarded a performance-based stock option (PVO) to purchase

800,000

shares of the Company's common stock to a key executive, with a contractual term of

seven

years. Vesting is based upon the achievement of certain performance criteria for each of fiscal

2022

and

2023

not

recorded stock-based compensation expense related to these options.

The Company did

not

grant any PVO's during the

three

months ended

December 31, 2020.

Restricted

Stock

Units

During fiscal

2018,

the Board of Directors granted

93,330

restricted stock units (“RSUs”) to employees that will vest equally over

three

years on each of the

first

three

anniversary dates of the grant. These were issued at a market value of

$210,

which will be expensed on a straight-line basis over the

three

-year life of the grants.

February 7, 2019,

the Board of Directors approved non-employee director compensation to include an annual grant of

30,000

RSUs to each of the Company's

five

non-employee directors that will vest on the

first

anniversary of the grant date. These were issued at a market value of

$413,

were expensed on a straight-line basis through the

March 12, 2020

vest date. Also, during fiscal

2019,

99,300

RSUs were granted to employees that will vest equally over

three

years on each of the

first

three

anniversary dates of the grant. These were issued at a market value of

$248,

which have and will be expensed on a straight-line basis over the

three

-year life of the grants. There were

RSUs granted during the

three

months ended

December 31, 2020.

Compensation expense for RSUs was

$138

for the

three

months ended

December 31, 2020.

Compensation expense for RSUs was

$126

for the

three

months ended

December 31, 2019.

A summary of the restricted stock units of the Company as of

December 31, 2020

is presented below:

	Number of Shares			Weighted Average Grant Date Fair Value
Outstanding September 30, 2020		303,014		$	2.82
Granted		-		$	-
Released		-		$	-
Forfeited/cancelled		(277	)	$	2.26
Outstanding December 31, 2020		302,737		$	2.82

Stock Option

Summary Information

A summary of the activity in options to purchase the capital stock of the Company as of

December 31, 2020

is presented below:

	Number of Shares			Weighted Average Exercise Price
Outstanding September 30, 2020		2,659,305		$	2.56
Granted		215,000		$	6.87
Forfeited/expired		(94,125	)	$	1.99
Exercised		(25,899	)	$	2.06
Outstanding December 31, 2020		2,754,281		$	2.92
Exerciseable December 31, 2020		1,500,749		$	2.08

Options outstanding are exercisable at prices ranging from

$1.31

$6.87

per share and expire over the period from

2020

2027

with an average life of

4.42

years. The aggregate intrinsic value of options outstanding and exercisable at

December 31, 2020

was

$9,993

and

$6,670,

respectively. The aggregate intrinsic value represents the difference between the Company's closing stock price on the last day of trading for the quarter, which was

$6.52

per share, and the exercise price multiplied by the number of applicable options. The total intrinsic value of stock options exercised during the

three

months ended

December 31, 2020

was

$113

and proceeds from these exercises was

$54.

The total intrinsic value of stock options exercised during the

three

months ended

December 31, 2019

was

$128

and proceeds from these exercises was

$144.

The following table summarized information about stock options outstanding at

December 31, 2020:

					Weighted Average		Weighted Average				Weighted Average
Range of			Number		Remaining		Exercise		Number		Exercise
Exercise Prices			Outstanding		Contractual Life		Price		Exercisable		Price
$1.31	-	$1.86		373,054		2.64	$	1.66		351,460	$	1.66
$1.99	-	$1.99		937,500		3.18	$	1.99		937,500	$	1.99
$2.02	-	$3.17		95,000		0.91	$	2.42		95,000	$	2.42
$3.39	-	$3.40		1,133,727		5.83	$	3.39		104,289	$	3.40
$6.87	-	$6.87		215,000		6.94	$	6.87		12,500	$	6.87
				2,754,281		4.42	$	2.92		1,500,749	$	2.08

The Company recorded

$44

and

$32

of stock option compensation expense for employees, directors and consultants for the

three

months ended

December 31, 2020,

and

2019,

respectively.

Share-Based Compensation

The Company recorded share-based compensation expense and classified it in the condensed consolidated statements of operations as follows:

	Three Months Ended
	December 31,
	2020		2019
Cost of revenues	$	5	$	4
Selling, general and administrative		171		143
Research and development		6		11
	$	182	$	158