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Note 12 - Share-based Compensation | 12 Months Ended
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Sep. 30, 2017
Notes to Financial Statements |
Disclosure of Compensation Related Costs, Share-based Payments [Text Block] | 1 2 . SHARE-BASED COMPENSATION Stock Option Plans At September 30, 201 7, 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 amendment to the Equity Incentive Plan was approved in 2015 authorizes for issuance as stock options, restricted stock, stock appreciation rights, restricted stock units and performance awards, an aggregate of 5,000,000 new shares of common stock to employees, directors, advisors or consultants. At September 30, 2017, there were options outstanding covering 2,377,502 and 2,411,000 shares of common stock under the 2005 Equity Plan and 2015 Equity Plan, respectively, and 2,330,667 shares of common stock available for grant for a total of 7,119,169 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. The Company recorded $1,116,400 and $605,426 of stock compensation expense for the years ended September 30, 2017 and 2016, respectively. The weighted average estimated fair value of employee stock options granted during the year ended September 30, 2017 and 2016 was calculated using the Black-Scholes option-pricing model with the following weighted average assumptions (annualized percentages):
|  | 2017 |  |  | 2016 |
Volatility |  |  | 42.6% | - | 53.7% |  |  |  | 49.0% | - | 52.0% |
Risk-free interest rate |  |  | 1.73% | - | 2.01% |  |  |  | 1.0% | - | 1.7% |
Forfeiture rate |  |  |  | 10.0% |  |  |  |  |  | 10.0% |  |
Dividend yield |  |  |  | 0.0% |  |  |  |  | 2.2% | - | 2.7% |
Expected life in years |  |  | 3.8 | - | 4.6 |  |  |  | 3.2 | - | 4.6 |
Weighted average fair value of options granted during the period |  |  |  | $0.71 |  |  |  |  |  | $0.70 |  |
The Company did not pay a dividend in fiscal 2017 but did pay a dividend during the year ended September 30, 2016. Expected volatility is based on the historical volatility of the Company’s common stock over the period commensurate with the expected life 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 life 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. As of September 30, 2017, there was approximately $683,000 of total unrecognized compensation costs related to outstanding employee stock options. This amount is expected to be recognized over a weighted average period of 2.2 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. Vesting is based upon the achievement of certain performance criteria for each of fiscal 2019 and 2020 ( 375,000 shares for each year) including a minimum Free Cash Flow margin and Net Revenue targets at four different target levels for each of the years. 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 it is probable that the performance condition will be achieved at the low end of the expected revenue level for each of the years , and therefore assumed that 187,500 shares of the PVO would vest. The weighted average grant date fair value for the PVO was $0.81 per share, which was estimated on the date of grant using the Black-Scholes option pricing model. Non-cash share-based compensation expense related to this award is recognized on a straight line basis and was $42,363 and $4,774 for the years ended September 30, 2017 and 2016 respectively. The Company will continue to review these targets each quarter and will adjust the expected outcome as needed, recognizing compensation expense cumulatively in such period for the difference in expense. The Company did not grant any PVOs in the year ended September 30, 2017. Restricted Stock Units In the quarter ended December 31, 2016, the Board of Directors approved an amendment to the Company’s compensation program for non-employee directors that provides for the grant of 25,000 restricted stock units (“RSUs”) to each of the Company’s non-employee directors at each annual meeting of the Company’s stockholders, subject to stockholder approval of the Amended and Restated 2015 Equity Incentive Plan at the 2017 Annual Meeting of Stockholders. These RSUs were granted as replacements for 20,000 stock options that would have been granted on the date of the 2016 Annual Meeting of Stockholders and would have vested on the first anniversary of the 2016 Annual Meeting of Stockholders, which was May 17, 2017. As a result of the stockholders approval of the Amended and Restated 2015 Equity Incentive Plan at the 2017 Annual Meeting of Stockholders on March 14, 2017, the RSUs previously granted were made effective at a market value of $197,500 and were expensed on a straight line basis through the May 17, 2017 vest date. O n March 14, 2017, non-employee directors of the Company received 25,000 RSUs that will vest on the first anniversary of the grant date. These were also issued at a market value of $197,500, which will be expensed on a straight line basis through the March 14, 2018 vest date. A summary of activity of the Company ’s restricted stock plan as of September 30, 2017 and 2016 is presented below:
|  | Number |
|  | of Shares |
Balance, September 30, 2016 |  |  | - |
Granted |  |  | 250,000 |
Released |  |  | (125,000 | )
Forfeited/cancelled |  |  | - |
Balance, September 30, 2017 |  |  | 125,000 |
Stock Option Summary Information A summary of activity for the Company ’s stock option plans as of September 30, 2017 and 2016 is presented below:
|  | Number |  |  | Weighted Average |
|  | of Shares |  |  | Exercise Price |
Outstanding October 1, 2016 |  |  | 4,404,002 |  |  | $ | 2.18 |
Granted |  |  | 574,500 |  |  | $ | 2.09 |
Forfeited/expired |  |  | (81,667 | ) |  | $ | 2.51 |
Exercised |  |  | (233,333 | ) |  | $ | 1.60 |
Outstanding September 30, 2017 |  |  | 4,663,502 |  |  | $ | 2.16 |
Exercisable September 30, 2017 |  |  | 3,329,437 |  |  | $ | 2.25 |
The aggregate intrinsic value for options outstanding and options exercisable at September 30, 2017 was $869,955 and $673,225, 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 $2.13 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, 2017 was $72,709 and proceeds from these exercises was $373,228. The total intrinsic value of stock options exercised during the year ended September 30, 2016 was $288 and cash received from these exercises was $2,200. The Company recognized $72,709 and $288 as a tax benefit in the income tax provision for the years ended September 30, 2017 and 2016, respectively. The following table summarizes information about stock options outstanding at September 30, 2017:
|  |  |  |  |  |  |  | Weighted |  |  |  |  |  |  |  |  |  |  |  |  |
|  |  |  |  |  |  |  | Average |  |  | Weighted |  |  |  |  |  |  | Weighted |
Range of |  |  |  |  |  | Remaining |  |  | Average |  |  |  |  |  |  | Average |
Exercise |  | Number |  |  | Contractual |  |  | Exercise |  |  | Number |  |  | Exercise |
Prices |  | Outstanding |  |  | Life |  |  | Price |  |  | Exercisable |  |  | Price |
$0.93 | - | $1.76 |  |  | 1,332,752 |  |  |  | 4.35 |  |  | $ | 1.65 |  |  |  | 1,036,036 |  |  | $ | 1.63 |
$1.77 | - | $1.99 |  |  | 1,654,500 |  |  |  | 4.63 |  |  | $ | 1.93 |  |  |  | 626,526 |  |  | $ | 1.89 |
$2.00 | - | $2.85 |  |  | 905,000 |  |  |  | 2.31 |  |  | $ | 2.57 |  |  |  | 902,500 |  |  | $ | 2.57 |
$2.86 | - | $3.13 |  |  | 761,250 |  |  |  | 1.29 |  |  | $ | 3.00 |  |  |  | 757,500 |  |  | $ | 3.00 |
$3.14 | - | $3.17 |  |  | 10,000 |  |  |  | 4.14 |  |  | $ | 3.17 |  |  |  | 6,875 |  |  | $ | 3.17 |
$0.93 | - | $3.17 |  |  | 4,663,502 |  |  |  | 3.41 |  |  | $ | 2.18 |  |  |  | 3,329,437 |  |  | $ | 2.25 |
The Company recorded non-cash share-based compensation expense for employees, directors and consultants for the fiscal years ended September 30, 2017 and 2016. The amounts of share-based compensation expense are classified in the Consolidated Statements of Operations as follows:
Years Ended September 30, |  | 2017 |  |  | 2016 |
Cost of revenues |  | $ | 24,151 |  |  | $ | 24,092 |
Selling, general and administrative |  |  | 998,540 |  |  |  | 478,695 |
Research and development |  |  | 93,709 |  |  |  | 102,639 |
Total |  | $ | 1,116,400 |  |  | $ | 605,426 |

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- Definition The entire disclosure for compensation-related costs for equity-based compensation, which may include disclosure of policies, compensation plan details, allocation of equity compensation, incentive distributions, equity-based arrangements to obtain goods and services, deferred compensation arrangements, employee stock ownership plan details and employee stock purchase plan details. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 718 -URI http://asc.fasb.org/topic&trid=2228938 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 505 -SubTopic 50 -URI http://asc.fasb.org/subtopic&trid=2208855 + Details
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