Note 16 - Share-based Compensation

12 Months Ended

Sep. 30, 2021

Notes to Financial Statements

Share-based Payment Arrangement [Text Block]

16. SHARE-BASED COMPENSATION

Stock Option Plans

As of September 30, 2021, 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 adopted by the Company’s Board of Directors on December 6, 2016 and approved by the Company’s stockholders on March 14, 2017. The 2015 Equity Plan was amended by the Company’s Board of Directors on December 8, 2020, to increase the number of shares authorized for issuance from 5,000,000 to 10,000,000. On March 16, 2021, the Company’s stockholders approved a plan amendment. The 2015 Equity Plan authorizes the issuance of stock options, restricted stock, stock appreciation rights, restricted stock units and performance awards, to an aggregate of 10,000,000 new shares of common stock to employees, directors, advisors or consultants. As of September 30, 2021, there were options and restricted stock units outstanding covering 85,000 and 3,059,853 shares of common stock under the 2005 Equity Plan and the 2015 Equity Plan, respectively, and 5,088,115 shares of common stock available for grant, for a total of 8,232,968 shares of common stock authorized and unissued under the two equity plans.

Share-Based Compensation

The Company’s 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 295,000 options granted during the year ended September 30, 2021 and 231,270 granted during the year ended September 30, 2020. The weighted average estimated fair value of stock options granted during the years ended September 30, 2021 and 2020, was calculated using the Black-Scholes option-pricing model with the following weighted average assumptions (annualized percentages):

	Years ended
	September 30,
	2021			2020
Volatility		48.5	%		44.5	%
Risk-free interest rate		0.7	%		1.4	%
Dividend yield		0.0	%		0.0	%
Expected term in years		6.5			5.4

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 fiscal 2020.

As of September 30, 2021, there was approximately $982 of total unrecognized compensation costs related to outstanding stock options. This amount is expected to be recognized over a weighted average period of 1.90 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

On 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 was 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 was 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.

On 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 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 has not recorded stock-based compensation expense related to these options.

The Company did not grant any PVO’s during the year ended September 30, 2021.

Restricted Stock Units

During fiscal 2018, the Board of Directors granted 93,330 restricted stock units (“RSUs”) to employees that vested 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 were expensed on a straight-line basis over the three-year life of the grants.

During fiscal 2019, the Board of Directors granted 99,300 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 $248, which have and will be expensed on a straight-line basis over the three-year life of the grants.

On March 10, 2020, each non-employee member of the Board of Directors received a grant of 30,000 RSUs that vested on the first anniversary of the grant date. These were issued at a market value of $425, which were expensed on a straight-line basis through the March 10, 2021 vest date. Also, in fiscal 2020, 81,270 RSUs were granted to employees that will vest over three years on the anniversary date of the grant. These were issued at a market value of $258, which have and will be expensed on a straight-line basis over the three-year life of the grants.

On March 16, 2021, each non-employee member of the Board of Directors received a grant of 27,883 RSUs that will vest on the first anniversary of the grant date. These were issued at a market value of $1,100, which have and will be expensed on a straight-line basis through the March 16, 2022 vest date. Also, during the fiscal 2021, 145,950 RSUs were granted to employees that will vest over three years on the anniversary date of the grant. These were issued at a market value of $989, which have and will be expensed on a straight-line basis over the three-year life of the grants. On June 7, 2021, 5,000 RSUs with immediate vesting were granted to an employee at a market value of $25. These were expensed during the quarter ended June 30, 2021. On September 1, 2021, two new members of the Board of Directors received a grant of 17,500 RSUs which will vest on March 16, 2022. These were issued at a market value of $184, which have and will be expensed on a straight-line basis through the March 16, 2022 vest date.

Compensation expense for RSUs was $1,130 for the year ended September 30, 2021. Compensation expense for RSUs was $584 for the year ended September 30, 2020.

Restricted Stock Unit Summary Information

A summary of restricted stock units of the Company as September 30, 2021 is presented below:

	Number of Shares			Weighted Average Grant Date Fair Value
Outstanding September 30, 2020		303,014		$	2.82
Granted		325,365		$	7.06
Released		(228,633	)	$	2.83
Forfeited/cancelled		(277	)	$	2.26
Outstanding September 30, 2021		399,469		$	6.27

Stock Option Summary Information

A summary of the activity in options to purchase the capital stock of the Company as of September 30, 2021 is presented below:

	Number of Shares			Weighted Average Exercise Price
Outstanding September 30, 2020		2,659,305		$	2.56
Granted		295,000		$	6.71
Forfeited/expired		(104,125	)	$	2.57
Exercised		(104,796	)	$	2.01
Outstanding September 30, 2021		2,745,384		$	3.02
Exerciseable September 30, 2021		1,541,176		$	2.24

The aggregate intrinsic value for options outstanding and options exercisable as of September 30, 2021 was $6,343 and $4,610, respectively. The aggregate intrinsic value represents the difference between the Company’s closing stock price on the last day of trading during the year, which was $5.18 per share, and the exercise price multiplied by the number of applicable options. The total intrinsic value of stock options exercised during the year ended September 30, 2021 was $725 and proceeds from these exercises was $211. The total intrinsic value of stock options exercised during the year ended September 30, 2020 was $2,578 and proceeds from these exercises was $1,136. The Company recognized $514 and $1,442 as a tax benefit in the income tax provision for the years ended September 30, 2021 and 2020, respectively.

The following table summarizes information about stock options outstanding as of September 30, 2021:

					Weighted Average		Weighted Average				Weighted Average
Range of			Number		Remaining		Exercise		Number		Exercise
Exercise Prices			Outstanding		Contractual Term		Price		Exercisable		Price
$1.31	-	$1.86		324,157		2.00	$	1.64		324,157	$	1.64
$1.99	-	$1.99		937,500		2.44	$	1.99		937,500	$	1.99
$2.16	-	$3.17		65,000		0.37	$	2.48		65,000	$	2.48
$3.39	-	$3.40		1,133,727		5.09	$	3.39		166,863	$	3.40
$5.05	-	$8.03		285,000		6.30	$	6.66		47,656	$	6.87
				2,745,384		3.83	$	3.02		1,541,176	$	2.24

The Company recorded $294 and $396 of stock option compensation expense for employees, directors and consultants for the years ended September 30, 2021, and 2020, respectively.

The amounts of share-based compensation expense for restricted stock units and stock options are classified in the Consolidated Statements of Operations as follows:

	Year ended September 30,
	2021		2020
Cost of revenues	$	40	$	20
Selling, general and administrative		1,344		939
Research and development		40		21
	$	1,424	$	980