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Note 15 - Share-based Compensation | 3 Months Ended
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Dec. 31, 2019
Notes to Financial Statements |
Share-based Payment Arrangement [Text Block] |
1 5 . | SHARE-BASED COMPENSATION
Stock Option Plans At December 31, 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 December 31, 2019, there were options and restricted stock units outstanding covering 461,494 and 2,093,285 shares of common stock under the 2005 Equity Plan and 2015 Equity Plan, respectively and 1,727,937 shares of common stock available for grant for a total of 4,282,716 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 333,727 stock options granted during the three months ended December 31, 2019. There were no stock options granted during fiscal 2019. The weighted average estimated fair value of employee stock options granted during the three months ended December 31, 2019 was calculated using the Black-Scholes option-pricing model with the following weighted average assumptions (annualized percentages):
|  | Three months ended |
|  | December 31, 2019 |
Volatility |  | 40.2% |
Risk-free interest rate |  | 1.5% |
Forfeiture rate |  | 10.0% |
Dividend yield |  | 0.0% |
Expected life in years |  | 5.0 |
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 pay a dividend in fiscal 2019 or in fiscal 2018. As of December 31, 2019, there was approximately $341,456 of total unrecognized compensation costs related to outstanding employee stock options. This amount is expected to be recognized over a weighted average period of 2.9 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. As of December 31, 2019, 187,500 of the options related to the 2019 targets vested. The Company determined that as of December 31, 2019, it is not probable that the performance conditions related to the 2020 options will be achieved. 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 PVO’s during the three months ended December 31, 2019. Restricted Stock Units 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 will vest on the first anniversary of the grant date. These were issued at a market value of $278,750, which have been and will be 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. There were no RSU’s granted during the three months ended December 31, 2019. Compensation expense for RSU’s was $126,367 for the three months ended December 31, 2019. Compensation expense for RSU’s was $79,112 for the three months ended December 31, 2018. A summary of the restricted stock units of the Company as of December 31, 2019 is presented below:
|  | Number of Shares |  |  | Weighted Average Grant Date Fair Value |
Outstanding September 30, 2019 |  |  | 274,849 |  |  | $ | 2.59 |
Granted |  |  | - |  |  | $ | - |
Released |  |  | - |  |  | $ | - |
Forfeited/cancelled |  |  | (2,222 | ) |  | $ | 2.50 |
Outstanding December 31, 2019 |  |  | 272,627 |  |  | $ | 2.60 |
Stock Option Summary Information A summary of the activity in options to purchase the capital stock of the Company as of December 31, 2019 is presented below:
|  | Number of Shares |  |  | Weighted Average Exercise Price |
Outstanding September 30, 2019 |  |  | 2,219,268 |  |  | $ | 1.94 |
Granted |  |  | 333,727 |  |  | $ | 3.40 |
Forfeited/expired |  |  | (187,500 | ) |  | $ | 1.99 |
Exercised |  |  | (83,343 | ) |  | $ | 1.73 |
Outstanding December 31, 2019 |  |  | 2,282,152 |  |  | $ | 2.17 |
Exerciseable December 31, 2019 |  |  | 1,539,220 |  |  | $ | 1.97 |
Options outstanding are exercisable at prices ranging from $1.31 to $3.40 and expire over the period from 2020 to 2026 with an average life of 3.6 years. The aggregate intrinsic value of options outstanding and exercisable at December 31, 2019 was $2,562,099 and $1,997,716, 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 $3.27 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, 2019 was $128,318 and proceeds from these exercises were $144,214. The total intrinsic value of stock options exercised during the three months ended December 31, 2018 was $1,504 and proceeds from these exercises were $2,528. The following table summarized information about stock options outstanding at December 31, 2019:
|  |  |  |  |  |  |  | Weighted Average |  |  | Weighted Average |  |  |  |  |  |  | Weighted Average |
Range of |  | Number |  |  | Remaining |  |  | Exercise |  |  | Number |  |  | Exercise |
Exercise Prices |  | Outstanding |  |  | Contractual Life |  |  | Price |  |  | Exercisable |  |  | Price |
$1.31 | - | $1.76 |  |  | 584,533 |  |  | 2.91 |  |  | $ | 1.65 |  |  |  | 531,220 |  |  | $ | 1.65 |
$1.86 | - | $1.86 |  |  | 130,142 |  |  | 2.96 |  |  | $ | 1.86 |  |  |  | 130,142 |  |  | $ | 1.86 |
$1.99 | - | $1.99 |  |  | 937,500 |  |  | 3.58 |  |  | $ | 1.99 |  |  |  | 562,500 |  |  | $ | 1.99 |
$2.02 | - | $3.40 |  |  | 629,977 |  |  | 4.35 |  |  | $ | 2.97 |  |  |  | 315,358 |  |  | $ | 2.97 |
|  |  |  |  | 2,282,152 |  |  | 3.59 |  |  | $ | 2.17 |  |  |  | 1,539,220 |  |  | $ | 1.97 |
The Company recorded $31,960 and $54,733 of stock option compensation expense for employees, directors and consultants for the three months ended December 31, 2019, and 2018, 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, |
|  | 2019 |  |  | 2018 |
Cost of revenues |  | $ | 3,642 |  |  | $ | 4,298 |
Selling, general, and administrative |  |  | 143,927 |  |  |  | 111,851 |
Research and development |  |  | 10,758 |  |  |  | 17,696 |
|  | $ | 158,327 |  |  | $ | 133,845 |

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