. SHARE-BASED COMPENSATION

Stock Option Plans

September 30, 2020,

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, 2020,

there were options and restricted stock units outstanding covering

140,000

and

2,822,319

shares of common stock under the

2005

Equity Plan and

2015

Equity Plan, respectively, and

604,355

shares of common stock available for grant for a total of

3,566,674

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

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,

2020

was calculated using the Black-Scholes option-pricing model with the following weighted average assumptions (annualized percentages):

Volatility	44.5	%
Risk Free Interest Rate	1.40	%
Forfeiture rate	10.0	%
Dividend Yield	0.0	%
Espected life in years	5.35

The Company did

not

pay a dividend in fiscal

2020

or in fiscal

2019.

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,

2020,

there was approximately

$651

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

1.63

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

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 is 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 is subject to the executive being employed by the Company at the time the Company achieves such financial targets. As of

September 30, 2019,

187,500

of the options related to the

2019

performance criteria vested. The Company recorded a total of

$151

in stock-based compensation expense for these options.

This agreement was modified in

October 2019,

and

93,750

of the unvested options initially allocated to the performance criteria for

2019

were assigned to fiscal

2020.

The Company determined that certain performance conditions related to the

2020

performance criteria were achieved and recorded

$268

of stock-based compensation expense in the year ended

September 30, 2020

related to these options. The total stock-based compensation related to the

2020

performance criteria was

$308.

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

not

recorded stock-based compensation expense related to these options.

Restricted

Stock

Units

During fiscal

2018,

the Board of Directors granted

93,330

restricted stock units (“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

$210,

which will be expensed on a straight line basis over the

three

-year life of the grants.

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

$413,

were 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,

which have and will be expensed on a straight line basis over the

three

year life of the grants.

March 10, 2020,

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 were issued at a market value of

$425,

which have and will be expensed on a straight-line basis through the

March 10, 2021

vest date. There were also

81,270

RSUs granted to employees during the year ended

September 30, 2020,

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.

Compensation expense for RSUs was

$584

for the year ended

September 30, 2020.

Compensation expense for RSUs was

$471

for the year ended

September 30, 2019.

Restricted Stock Unit

Summary Information

A summary of restricted stock units of the Company as

September 30, 2020

is presented below:

	Number of Shares			Weighted Average Grant Date Fair Value
Outstanding September 30, 2019		274,849		$	2.59
Granted		231,270		$	2.95
Released		(198,106	)	$	2.66
Forfeited/cancelled		(4,999	)	$	2.58
Outstanding September 30, 2020		303,014		$	2.82

Stock Option Summary Information

A summary of the activity in options to purchase the capital stock of the Company as of

September

30,

2020

is presented below:

	Number of Shares			Weighted Average Exercise Price
Outstanding September 30, 2019		2,219,268		$	1.94
Granted		1,133,727		$	3.39
Forfeited/expired		(110,671	)	$	2.11
Exercised		(583,019	)	$	1.95
Outstanding September 30, 2020		2,659,305		$	2.56
Exerciseable September 30, 2020		1,110,789		$	2.03

The aggregate intrinsic value for options outstanding and options exercisable at

September

30,

2020

was

$9,551

and

$4,575,

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

$6.15

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, 2020

was

$2,578

and proceeds from these exercises was

$1,136.

The total intrinsic value of stock options exercised during the year ended

September 30, 2019

was

$638

and cash received from these exercises was

$757.

The Company recognized

$1,442

and

$638

as a tax benefit in the income tax provision for the years ended

September 30, 2020

and

2019,

respectively.

The following table summarizes information about stock options outstanding at

September

30,

2020:

					Weighted Average		Weighted Average				Weighted Average
Range of			Number		Remaining		Exercise		Number		Exercise
Exercise Prices			Outstanding		Contractual Life		Price		Exercisable		Price
$1.31	-	$1.86		376,828		2.90	$	1.66		347,358	$	1.66
$1.99	-	$1.99		1,031,250		3.39	$	1.99		562,500	$	1.99
$2.02	-	$3.17		117,500		1.04	$	2.36		117,500	$	2.36
$3.39	-	$3.39		800,000		6.12	$	3.39		-	$	-
$3.40	-	$3.40		333,727		6.00	$	3.40		83,431	$	3.40
				2,659,305		4.36	$	2.56		1,110,789	$	2.03

The Company recorded

$396

and

$264

of stock option compensation expense for employees, directors and consultants for the years ended

September 30, 2020,

and

2019,

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
	2020		2019
Cost of revenues	$	20	$	16
Selling, general and administrative		939		665
Research and development		21		54
	$	980	$	735