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Note 14 - Share-based Compensation | 12 Months Ended
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Sep. 30, 2019
Notes to Financial Statements |
Share-based Payment Arrangement [Text Block] | 1 4 . SHARE-BASED COMPENSATION Stock Option Plans At September 30, 2019, 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, 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, 2019, there were options and restricted stock units outstanding covering 499,494 and 1,994,623 shares of common stock under the 2005 Equity Plan and 2015 Equity Plan, respectively, and 1,874,164 shares of common stock available for grant for a total of 4,368,281 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 no options granted during the year ended September 30, 2019. The weighted average estimated fair value of employee stock options granted during the year ended September 30, 2018 was calculated using the Black-Scholes option-pricing model with the following weighted average assumptions (annualized percentages):
|  | 2018 |
Volatility |  |  | 45.4 | %
Risk free interest rate |  |  | 2.18 | %
Forfeiture rate |  |  | 10.0 | %
Dividend yield |  |  | 0.0 | %
Expected life in years |  |  | 4.6 |
Weighted average FV |  | $ | 0.89 |
The Company did not pay a dividend in fiscal 2019 or in fiscal 2018. 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, 2019, there was approximately $415,449 of total unrecognized compensation costs related to outstanding stock options and restricted stock units. This amount is expected to be recognized over a weighted average period of 1.3 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 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 as of September 30, 2019, it is probable that some of the performance conditions will be achieved and recorded $128,025 in share-based compensation expense related to these options for the year ended September 30, 2019. 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, 2019. Restricted Stock Units On March 14, 2017, the Board of Directors approved a grant of 25,000 restricted stock units (“RSUs”) to each of the Company’s non-employee directors that vested on the first anniversary of the grant date. These were also issued at a market value of $197,500, which was expensed on a straight line basis through the March 14, 2018 vest date. On March 20, 2018, the Board of Directors approved an additional grant of 25,000 RSUs to each of the Company’s non-employee directors that vested on the first anniversary of the grant date. These were issued at a market value of $278,750, which were expensed on a straight line basis through the March 20, 2019 vest date. Also, during fiscal 2018, 93,330 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 $210,176, which will be expensed on a straight line basis over the three year life of the grants. On 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 $412,500, which have been and will be 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 $248,250, which will be expensed on a straight line basis over the three year life of the grants. Compensation expense for RSUs was $470,857 for the year ended September 30, 2019. Compensation expense for RSUs was $276,438 for the year ended September 30, 2018. Restricted Stock Unit Summary Information A summary of the activity of RSUs as of September 30, 2019 is presented below:
|  | Number of Shares |  |  | Weighted Average Grant Date Fair Value |
Outstanding September 30, 2018 |  |  | 218,330 |  |  | $ | 2.24 |
Granted |  |  | 249,300 |  |  | $ | 2.65 |
Released |  |  | (156,115 | ) |  | $ | 2.23 |
Forfeited/cancelled |  |  | (36,666 | ) |  | $ | 2.39 |
Outstanding September 30, 2019 |  |  | 274,849 |  |  | $ | 2.59 |
Stock Option Summary Information A summary of the activity in options to purchase the capital stock of the Company as of September 30, 2019 is presented below:
|  | Number of Shares |  |  | Weighted Average Exercise Price |
Outstanding September 30, 2018 |  |  | 3,394,858 |  |  | $ | 2.18 |
Granted |  |  | - |  |  | $ | - |
Forfeited/expired |  |  | (769,439 | ) |  | $ | 2.99 |
Exercised |  |  | (406,151 | ) |  | $ | 1.86 |
Outstanding September 30, 2019 |  |  | 2,219,268 |  |  | $ | 1.94 |
Exerciseable September 30, 2019 |  |  | 1,405,578 |  |  | $ | 1.93 |
The aggregate intrinsic value for options outstanding and options exercisable at September 30, 2019 was $3,107,958 and $1,985,062, 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 $3.35 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, 2019 was $638,140 and proceeds from these exercises was $756,513. The total intrinsic value of stock options exercised during the year ended September 30, 2018 was $752,729 and cash received from these exercises was $2,434,888. The Company recognized $638,140 and $752,729 as a tax benefit in the income tax provision for the years ended September 30, 2019 and 2018, respectively. The following table summarizes information about stock options outstanding at September 30, 2019:
Range of Exercise Prices |  |  | Number Outstanding |  |  |  | Weighted Average Remaining Contractural Life |  |  |  | Weighted Average Exercise Price |  |  |  | Number Exercisable |  |  |  | Weighted Avrage Exercise Price |
$1.31 | - | $1.76 |  |  | 637,876 |  |  |  | 3.25 |  |  | $ | 1.65 |  |  |  | 576,155 |  |  | $ | 1.64 |
$1.86 | - | $1.86 |  |  | 160,142 |  |  |  | 3.21 |  |  | $ | 1.86 |  |  |  | 160,142 |  |  | $ | 1.86 |
$1.99 | - | $1.99 |  |  | 1,125,000 |  |  |  | 3.84 |  |  | $ | 1.99 |  |  |  | 375,000 |  |  | $ | 1.99 |
$2.02 | - | $1.99 |  |  | 296,250 |  |  |  | 2.07 |  |  | $ | 2.49 |  |  |  | 294,281 |  |  | $ | 2.50 |
|  |  |  |  | 2,219,268 |  |  |  | 3.39 |  |  | $ | 1.95 |  |  |  | 1,405,578 |  |  | $ | 1.94 |
The Company recorded $264,146 and $308,435 of stock option compensation expense for employees, directors and consultants for the years ended September 30, 2019, and 2018, 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, |
|  | 2019 |  |  | 2018 |
Cost of revenues |  | $ | 15,792 |  |  | $ | 21,388 |
Selling, general, and administrative |  |  | 665,295 |  |  |  | 479,165 |
Research and development |  |  | 53,916 |  |  |  | 84,320 |
|  | $ | 735,003 |  |  | $ | 584,873 |

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