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Note 14 - Share-based Compensation | 9 Months Ended
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Jun. 30, 2019
Notes to Financial Statements |
Share-based Payment Arrangement [Text Block] | 1 4 . SHARE-BASED COMPENSATION Equity Incentive Plans At June 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 Plan was approved in 2015 and authorizes for issuance 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 June 30, 2019, there were options and restricted stock units outstanding covering 691,383 and 2,174,708 shares of common stock under the 2005 Equity Plan and 2015 Equity Plan, respectively, and 1,873,059 shares of common stock available for grant for a total of 4,739,150 currently available under the two equity plans. Stock Option Information A summary of the activity in options to purchase the capital stock of the Company as of June 30, 2019 is presented below:
|  | Number of Shares |  |  | Weighted Average Exercise Price |
Outstanding September 30, 2018 |  |  | 3,394,858 |  |  | $ | 2.18 |
Granted |  |  | - |  |  | $ | - |
Forfeited/expired |  |  | (768,334 | ) |  | $ | 2.99 |
Exercised |  |  | (35,282 | ) |  | $ | 1.55 |
Outstanding June 30, 2019 |  |  | 2,591,242 |  |  | $ | 1.94 |
Exerciseable June 30, 2019 |  |  | 1,736,114 |  |  | $ | 1.93 |
Options outstanding are exercisable at prices ranging from $1.31 to $3.17 and expire over the period from 2020 to 2024 with an average life of 3.22 years. The aggregate intrinsic value of options outstanding and exercisable at June 30, 2019 was $3,495,052 and $2,364,061, 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 $3.29 per share, and the exercise price multiplied by the number of applicable options. The total intrinsic value of stock options exercised during the nine months ended June 30, 2019 was $97,609 and proceeds from these exercises were $54,621. The following table summarized information about stock options outstanding and exercisable at June 30, 2019:
|  |  |  |  |  |  |  | Weighted Average |  |  | Weighted Average |  |  |  |  |  |  | Weighted Average |
Range of |  | Number |  |  | Remaining |  |  | Exercise |  |  | Number |  |  | Exercise |
Exercise Prices |  | Outstanding |  |  | Contractual Life |  |  | Price |  |  | Exercisable |  |  | Price |
$1.31 | - | $1.69 |  |  | 572,266 |  |  |  | 2.91 |  |  | $ | 1.57 |  |  |  | 557,639 |  |  | $ | 1.57 |
$1.71 | - | $1.86 |  |  | 523,726 |  |  |  | 2.58 |  |  | $ | 1.80 |  |  |  | 466,663 |  |  | $ | 1.81 |
$1.99 | - | $1.99 |  |  | 1,125,000 |  |  |  | 4.09 |  |  | $ | 1.99 |  |  |  | 343,750 |  |  | $ | 1.99 |
$2.02 | - | $3.13 |  |  | 360,250 |  |  |  | 1.98 |  |  | $ | 2.55 |  |  |  | 358,062 |  |  | $ | 2.55 |
$3.17 | - | $3.17 |  |  | 10,000 |  |  |  | 2.39 |  |  | $ | 3.17 |  |  |  | 10,000 |  |  | $ | 3.17 |
|  |  |  |  | 2,591,242 |  |  |  |  |  |  |  |  |  |  |  | 1,736,114 |  |  |  |  |
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 June 30, 2019, it is probable that some of the performance conditions will be achieved and recorded $101,447 in share-based compensation expense related to these options for the three months ended June 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. Restricted Stock Units On March 14, 2017, the Board of Directors approved a grant of 25,000 RSUs to each of the Company’s non-employee directors that will vest 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 and will vest 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. During the quarter ended March 31, 2019, 93,330 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 $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 RSU’s to each of the Company’s 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. Compensation expense for RSUs was $124,991 for the three months ended June 30, 2019 and $344,473 for the nine months ended June 30, 2019. Compensation expense for RSUs was $78,252 for the three months ended June 30, 2018 and $197,325 for the nine months ended June 30, 2018. A summary of the restricted stock units of the Company as of June 30, 2019 is presented below:
|  | Number of Shares |
Outstanding September 30, 2018 |  |  | 218,330 |
Granted |  |  | 249,300 |
Released |  |  | (156,115 | )
Forfeited/cancelled |  |  | (36,666 | )
Outstanding June 30, 2019 |  |  | 274,849 |
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 stock options granted during the nine months ended June 30, 2019. The weighted average estimated fair value of employee stock options granted during the nine months ended June 30, 2018 was calculated using the Black-Scholes option-pricing model with the following weighted average assumptions (annualized percentages):
|  | Nine months ended |
|  | June 30, 2018 |
Volatility |  |  | 45.4% |
Risk free interest rate |  |  | 2.2% |
Forfeiture rate |  |  | 10.0% |
Dividend yield |  |  | 0.0% |
Expected life in years |  |  | 4.6% |
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. The Company did not declare a dividend for the nine -month periods ended June 30, 2019 or in fiscal year 2018. As of June 30, 2019, there was approximately $575,955 of unrecognized compensation costs related to outstanding non-performance-based employee stock options and restricted stock units. This amount is expected to be recognized over a weighted average period of 1.05 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. The Company recorded share-based compensation expense and classified it in the condensed consolidated statements of operations as follows:
|  | Three months ended |  |  | Nine months ended |
|  | June 30, |  |  | June 30, |
|  | 2019 |  |  | 2018 |  |  | 2019 |  |  | 2018 |
Cost of revenues |  | $ | 3,627 |  |  | $ | 5,111 |  |  | $ | 12,126 |  |  | $ | 16,367 |
Selling, general and administrative |  |  | 242,660 |  |  |  | 123,311 |  |  |  | 508,761 |  |  |  | 352,766 |
Research and development |  |  | 11,279 |  |  |  | 20,391 |  |  |  | 42,499 |  |  |  | 63,930 |
|  | $ | 257,566 |  |  | $ | 148,813 |  |  | $ | 563,386 |  |  | $ | 433,063 |

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- Definition The entire disclosure for share-based payment arrangement. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 718 -URI http://asc.fasb.org/topic&trid=2228938 + Details
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