Note 15 - Share-based Compensation

3 Months Ended

Dec. 31, 2023

Notes to Financial Statements

Share-Based Payment Arrangement [Text Block]

15. SHARE-BASED COMPENSATION

Stock option plans

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 the plan amendment. The 2015 Equity Plan authorizes the issuance of stock options, restricted stock, stock appreciation rights, restricted stock units (“RSUs”) and performance awards, to an aggregate of 10,000,000 new shares of common stock to employees, directors, advisors or consultants. As of December 31, 2023, there were options and restricted stock units outstanding covering 4,146,369 shares of common stock under the 2015 Equity Plan, respectively, and 2,302,827 shares of common stock available for grant, for a total of 6,449,196 shares of common stock authorized and unissued under the 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 887,250 stock options granted during the three months ended December 31, 2023. There were 1,204,000 stock options granted during the three months ended December 31, 2022. The weighted average estimated fair value of employee stock options granted during the three months ended December 31, 2023 and 2022, was calculated using the Black-Scholes option-pricing model with the following weighted average assumptions (annualized percentages):

	Three months ended
	December 31,
	2023			2022
Volatility		57.8	%		52.1	%
Risk-free interest rate		4.3	%		4.1	%
Dividend yield		0.0	%		0.0	%
Expected term in years		4.2			6.1

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 has not paid a dividend in fiscal 2024 and did not pay a dividend in fiscal 2023.

As of December 31, 2023, there was approximately $2,154 of total unrecognized compensation costs related to outstanding employee stock options. This amount is expected to be recognized over a weighted average period of 2.4 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 10, 2022, the Company granted PVOs to purchase up to 750,000 shares of the Company’s common stock to a key member of management, with a contractual term of seven years. During the year ended September 30, 2023, these options were forfeited due to a voluntary termination of employment. The Company did not record compensation expense related to these options.

On October 8, 2022, the Company awarded performance-based stock options 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 2025 and 2026 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 record compensation expense related to these options.

On March 20, 2023, the Company granted PVOs to purchase up to 450,000 shares of the Company’s stock to a key member of management with a contractual term of seven years. Vesting is based upon the achievement of certain performance criteria for each of the first three twelve-month periods following the employee’s start date, including targets related to growth in the institutional ownership of the Company’s common stock and growth in the trading volume of the Company’s common stock during such periods. Additionally, vesting is subject to the employee being employed by the Company on each of the first three anniversaries of the employee’s start date. 225,000 of these options contain a market-based vesting condition and accounting principles do not require the market condition to be achieved in order for compensation expense to be recognized. The Company recorded $62 of compensation expense related to these options during the three months ended December 31, 2023.

The Company did not grant any PVO’s during the three months ended December 31, 2023.

Restricted stock units

During 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 November 1, 2021, 10,000 RSUs were granted to a non-employee advisor that vested on the first anniversary of the grant date. These were issued at a market value of $51, which were expensed on a straight-line basis though the November 1, 2022 vest date. On November 1, 2022, 10,000 RSUs were granted to a non-employee advisor that vested on the first anniversary of the grant date. These were issued at a market value of $29, which were expensed on a straight-line basis though the November 1, 2023 vest date. On November 1, 2023, 10,000 RSUs were granted to a non-employee advisor that will vest on the first anniversary of the grant date. These were issued at a market value of $17, which have and will be expensed on a straight-line basis though the November 1, 2024, vest date.

On March 14, 2023, each non-employee member of the Board of Directors received a grant of 30,000 RSUs that will vest on the first anniversary of the grant date. These RSUs were granted at a market value of $417 and have and will be expensed on a straight-line basis through the March 14, 2024, vest date. On February 14, 2023, 145,600 RSUs were granted to employees that will vest over three years on the anniversary date of the grant. These RSUs were issued at a market value of $582, which have and will be expensed on a straight-line basis over the three-year life of the grants.

Compensation expense for RSUs was $228 and $198 for the three months ended December 31, 2023 and 2022, respectively. As of December 31, 2023, there was approximately $666 of total unrecognized compensation costs related to outstanding RSUs. This amount is expected to be recognized over a weighted average period of 1.1 years.

A summary of the Company’s RSUs as of December 31, 2023 is presented below:

	Number of Shares			Weighted Average Grant Date Fair Value
Outstanding September 30, 2023		379,597		$	3.94
Granted		10,000		$	1.73
Released		(10,000	)	$	2.87
Forfeited/cancelled		-		$	-
Outstanding December 31, 2023		379,597		$	3.91

Stock option summary information

A summary of the activity in options to purchase the capital stock of the Company as of December 31, 2023 is presented below:

	Number of Shares			Weighted Average Exercise Price
Outstanding September 30, 2023		2,904,522		$	3.19
Granted		887,250		$	1.70
Forfeited/expired		(25,000	)	$	1.70
Exercised		-		$	-
Outstanding December 31, 2023		3,766,772		$	2.85
Exerciseable December 31, 2023		992,981		$	3.48

Options outstanding are exercisable at prices ranging from $1.51 to $8.03 per share and expire over the period from 2024 to 2030 with an average life of 5.5 years. The aggregate intrinsic value of options outstanding and exercisable as of December 31, 2023 was $322 and $29, 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 $2.03 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, 2023 was $0 and proceeds from these exercises was $0. The total intrinsic value of stock options exercised during the three months ended December 31, 2022 was $23 and proceeds from these exercises was $32.

The following table summarized information about stock options outstanding as of December 31, 2023:

					Weighted Average		Weighted Average				Weighted Average
Range of			Number		Remaining		Exercise		Number		Exercise
Exercise Prices			Outstanding		Contractual Term		Price		Exercisable		Price
$1.51	-	$1.76		991,407		6.29	$	1.71		104,157	$	1.75
$2.64	-	$2.68		88,000		6.60	$	2.67		-	$	-
$2.69	-	$2.69		1,100,000		5.77	$	2.69		125,000	$	2.69
$3.09	-	$8.03		1,587,365		4.75	$	3.69		763,824	$	3.84
				3,766,772		5.49	$	2.85		992,981	$	3.48

The Company recorded $218 and $222 of stock option compensation expense for employees, directors and consultants for the three months ended December 31, 2023, and 2022, 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,
	2023		2022
Cost of revenues	$	39	$	28
Selling, general and administrative		380		373
Research and development		27		19
	$	446	$	420