16.

SHARE-BASED COMPENSATION

Stock Option Plans

March 31, 2021,

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 adopted by the Company's Board of Directors on

December 6, 2016

and approved by the Company's stockholders on

March 14, 2017.

The

2015

Equity Plan was amended by the Company's Board of Directors on

December 8, 2020

to increase the number of shares authorized for issuance from

5,000,000

10,000,000.

March 16, 2021,

the Company's stockholders approved a plan amendment. The

2015

Equity Plan authorizes the issuance of stock options, restricted stock, stock appreciation rights, restricted stock units and performance awards, to an aggregate of

10,000,000

new shares of common stock to employees, directors, advisors or consultants. At

March 31, 2021,

there were options and restricted stock units outstanding covering

92,500

and

2,956,887

shares of common stock under the

2005

Equity Plan and

2015

Equity Plan, respectively and

5,206,915

shares of common stock available for grant for a total of

8,256,302

shares of common stock currently authorized and unissued 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

245,000

stock options granted during the

six

months ended

March 31, 2021.

There were

1,133,727

stock options granted during fiscal

2020.

The weighted average estimated fair value of employee stock options granted during the

six

months ended

March 31, 2021

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

	Six months ended
	March 31,
	2021		2020
Volatility		48.5%		44.5%
Risk-free interest rate		0.6%		1.4%
Dividend yield		0.0%		0.0%
Expected term		6.8		5.4

Expected volatility is based on the historical volatility of the Company's common stock over the period commensurate with the expected term 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 term 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 has

not

paid a dividend in fiscal

2021

and did

not

pay a dividend in fiscal

2020.

As of

March 31, 2021,

there was approximately

$812

of total unrecognized compensation costs related to outstanding employee stock options. This amount is expected to be recognized over a weighted average period of

2.4

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.

The Company determined that certain performance conditions related to the

2019

and

2020

performance criteria were achieved.

187,500

options related to the

2019

performance criteria vested and

375,000

options related to the

2020

performance criteria vested. The Company recorded a total of

$459

in stock-based compensation expense for these options through

September 30, 2020,

in selling, general and administrative expenses in the consolidated statement of operations.

(in thousands, except per share and share amounts)

(Unaudited)

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.

The Company did

not

grant any PVO's during the

six

months ended

March 31, 2021.

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.

During fiscal

2019,

the Board of Directors granted

99,300

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

$248,

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

three

-year life of the grants.

March 10, 2020,

each member of the Board of Directors received a grant of

30,000

RSUs that vested on the

first

anniversary of the grant date. These were issued at a market value of

$425,

which were expensed on a straight-line basis through the

March 10, 2021

vest date. Also, in fiscal

2020,

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

$258,

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

three

-year life of the grants.

March 16, 2021,

each member of the Board of Directors received a grant of

27,883

RSUs that vested on the

first

anniversary of the grant date. These were issued at a market value of

$1,100,

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

March 16, 2022

vest date. Also, during the quarter,

107,200

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

$793,

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, 2021,

the Company retained

22,073

shares of common stock to satisfy tax withholding obligations upon the vesting of RSUs issued to employees. 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.

Compensation expense for RSUs was

$249

and

$387

for the

three

months and

six

months ended

March 31, 2021,

respectively.. Compensation expense for RSUs was

$168

and

$294

for the

three

and

six

months ended

March 31, 2020,

respectively. As of

March 31, 2021,

there was approximately

$1,713

of total unrecognized compensation costs related to outstanding RSUs. This amount is expected to be recognized over a weighted average period of

1.71

years.

A summary of the restricted stock units of the Company as of

March 31, 2021

is presented below:

	Number of Shares			Weighted Average Grant Date Fair Value
Outstanding September 30, 2020		303,014		$	2.82
Granted		246,565		$	7.68
Released		(223,633	)	$	2.78
Forfeited/cancelled		(277	)	$	2.26
Outstanding March 31, 2021		325,669		$	6.53

(in thousands, except per share and share amounts)

(Unaudited)

Stock Option Summary Information

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

March 31, 2021

is presented below:

	Number of Shares			Weighted Average Exercise Price
Outstanding September 30, 2020		2,659,305		$	2.56
Granted		245,000		$	7.01
Forfeited/expired		(94,125	)	$	1.99
Exercised		(86,462	)	$	1.97
Outstanding March 31, 2021		2,723,718		$	3.00
Exerciseable March 31, 2021		1,480,606		$	2.14

Options outstanding are exercisable at prices ranging from

$1.31

$8.03

per share and expire over the period from

2021

2028

with an average life of

4.27

years. The aggregate intrinsic value of options outstanding and exercisable at

March 31, 2021

was

$10,137

and

$6,742,

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

$6.69

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, 2021

was

$455

and proceeds from these exercises were

$170.

The total intrinsic value of stock options exercised during the

six

months ended

March 31, 2020

was

$242

and proceeds from these exercises were

$258.

The following table summarized information about stock options outstanding at

March 31, 2021:

					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		334,991		2.50	$	1.64		321,241	$	1.64
$1.99	-	$1.99		937,500		2.94	$	1.99		937,500	$	1.99
$2.16	-	$3.17		72,500		0.85	$	2.52		72,500	$	2.52
$3.39	-	$3.40		1,133,727		5.59	$	3.39		125,147	$	3.40
$6.87	-	$8.03		245,000		6.71	$	7.01		24,218	$	6.87
				2,723,718		4.27	$	3.00		1,480,606	$	2.14

The Company recorded

$79

and

$128

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

three

months ended

March 31, 2021,

and

2020,

respectively. The Company recorded

$123

and

$160

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

six

months ended

March 31, 2021,

and

2020,

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,
	2021		2020		2021		2020
Cost of revenues	$	9	$	7	$	15	$	11
Selling, general and administrative		309		283		479		427
Research and development		10		6		16		16
	$	328	$	296	$	510	$	454

(in thousands, except per share and share amounts)

(Unaudited)