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Note 15 - Share-based Compensation | 6 Months Ended
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Mar. 31, 2020
Notes to Financial Statements |
Share-based Payment Arrangement [Text Block] | 1 5 . SHARE-BASED COMPENSATION Stock Option Plans At March 31, 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 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 March 31, 2020, there were options and restricted stock units outstanding covering 303,014 and 3,103,558 shares of common stock under the 2005 Equity Plan and 2015 Equity Plan, respectively and 602,917 shares of common stock available for grant for a total of 4,009,489 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 1,133,727 stock options granted during the six months ended March 31, 2020. There were no stock options granted during fiscal 2019. The weighted average estimated fair value of employee stock options granted during the six months ended March 31, 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 | %
Expected life in years |  |  | 5.35 |
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 March 31, 2020, there was approximately $420,168 of total unrecognized compensation costs related to outstanding employee stock options. This amount is expected to be recognized over a weighted average period of 2.28 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. 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 $151,181 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. On 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 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. The Company determined that as of March 31, 2020, it is probable that certain performance conditions related to the 2020 performance criteria will be achieved. During the three and six months ended March 31, 2020, the Company recorded $95,750 in stock based compensation expense related to performance-based stock options. 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 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 $210,176, 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 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 $248,250, which will be expensed on a straight line basis over the three year life of the grants. On March 10, 2020, each 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 $424,500, which have and will be expensed on a straight-line basis through the March 10, 2021 vest date. Also, during the quarter, 81,270 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 $257,626, which have and will be expensed on a straight-line basis over the three -year life of the grants. During the six months ended March 31, 2020, the Company retained 13,063 shares of common stock to satisfy tax withholding obligations upon the vesting of RSUs issued to employees. These shares were not acquired pursuant to any repurchase plan or program. During the six months ended March 31, 2019, there were no shares retained to satisfy withholding obligations in connection with the vesting of RSUs issued to employees. Compensation expense for RSUs was $167,724 for the three months ended March 31, 2020. Compensation expense for RSUs was $294,090 for the six months ended March 31, 2020. Compensation expense for RSUs was $140,370 for the three months ended March 31, 2019 and $219,482 for the six months ended March 31, 2019. As of March 31, 2020, there was approximately $788,161 of total unrecognized compensation costs related to outstanding RSUs. This amount is expected to be recognized over a weighted average period of 1.56 years. A summary of the restricted stock units of the Company as of March 31, 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 March 31, 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 March 31, 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 |  |  | (109,233 | ) |  | $ | 2.11 |
Exercised |  |  | (140,204 | ) |  | $ | 1.84 |
Outstanding March 31, 2020 |  |  | 3,103,558 |  |  | $ | 2.48 |
Exerciseable March 31, 2020 |  |  | 1,495,857 |  |  | $ | 1.98 |
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 4.4 years. The aggregate intrinsic value of options outstanding and exercisable at March 31, 2020 was $2,603,494 and $1,931,620, 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 six months ended March 31, 2020 was $241,715 and proceeds from these exercises were $258,047. The total intrinsic value of stock options exercised during the six months ended March 31, 2019 was $34,903 and proceeds from these exercises were $45,172. The following table summarized information about stock options outstanding at March 31, 2020:
Range of Exercise Prices |  | Number Outstanding |  |  | Weighted Average Remaining Contractual Life |  |  | Weighted Average Exercise Price |  |  | Number Exercisable |  |  | Weighted Average Exercise Price |
$1.31 | - | $1.86 |  |  | 673,862 |  |  |  | 2.80 |  |  | $ | 1.69 |  |  |  | 628,455 |  |  | $ | 1.68 |
$1.99 | - | $1.99 |  |  | 1,031,250 |  |  |  | 3.89 |  |  | $ | 1.99 |  |  |  | 562,500 |  |  | $ | 1.99 |
$2.02 | - | $3.17 |  |  | 264,719 |  |  |  | 1.54 |  |  | $ | 2.46 |  |  |  | 263,187 |  |  | $ | 2.46 |
$3.39 | - | $3.40 |  |  | 1,133,727 |  |  |  | 6.59 |  |  | $ | 3.39 |  |  |  | 41,715 |  |  | $ | 3.40 |
|  |  |  |  | 3,103,558 |  |  |  | 4.44 |  |  | $ | 2.48 |  |  |  | 1,495,857 |  |  | $ | 1.98 |
The Company recorded $127,566 and $31,605 of stock option compensation expense for employees, directors and consultants for the three months ended March 31, 2020, and 2019, respectively. The Company recorded $159,527 and $86,338 of stock option compensation expense for employees, directors and consultants for the six months ended March 31, 2020, and 2019, 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 |  |  | Six months ended |
|  | March 31 |  |  | March 31 |
|  | 2020 |  |  | 2019 |  |  | 2020 |  |  | 2019 |
Cost of revenues |  | $ | 6,909 |  |  | $ | 4,201 |  |  | $ | 10,551 |  |  | $ | 8,499 |
Selling, general and administrative |  |  | 283,314 |  |  |  | 163,932 |  |  |  | 427,241 |  |  |  | 284,973 |
Research and development |  |  | 5,067 |  |  |  | 3,842 |  |  |  | 15,825 |  |  |  | 12,348 |
|  | $ | 295,290 |  |  | $ | 171,975 |  |  | $ | 453,617 |  |  | $ | 305,820 |

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