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Note 16 - Share-based Compensation

9 Months Ended

Jun. 30, 2021

Share-based Payment Arrangement [Text Block]

16. SHARE-BASED COMPENSATION

Stock Option Plans

As of June 30, 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 to 10,000,000. On 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. As of June 30, 2021, there were options and restricted stock units outstanding covering 92,500 and 3,015,637 shares of common stock under the 2005 Equity Plan and 2015 Equity Plan, respectively and 5,143,165 shares of common stock available for grant for a total of 8,251,302 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 275,000 stock options granted during the nine months ended June 30, 2021. There were 1,133,727 stock options granted during the nine months ended June 30, 2020. The weighted average estimated fair value of employee stock options granted during the nine months ended June 30, 2021 was calculated using the Black-Scholes option-pricing model with the following weighted average assumptions (annualized percentages):

	Nine months ended
	June 30,
	2021			2020
Volatility		48.5	%		44.5	%
Risk-free interest rate		0.6	%		1.4	%
Dividend yield		0.0	%		0.0	%
Expected term		6.6			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 June 30, 2021, there was approximately $787 of total unrecognized compensation costs related to outstanding employee stock options. This amount is expected to be recognized over a weighted average period of 2.1 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.

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.

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. Through June 30, 2021, the Company has not recorded stock-based compensation expense related to these options.

The Company did not grant any PVO’s during the nine months ended June 30, 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.

On 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.

On 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 fiscal 2021, 145,950 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 $989, which have and will be expensed on a straight-line basis over the three-year life of the grants. During the quarter, 5,000 RSUs with immediate vesting were granted to an employee at a market value of $25. These were expensed during the quarter ended June 30, 2021.

During the nine months ended June 30, 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 nine months ended June 30, 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 $363 and $750 for the three months and nine months ended June 30, 2021, respectively. Compensation expense for RSUs was $136 and $431 for the three and nine months ended June 30, 2020, respectively. As of June 30, 2021, there was approximately $1,534 of total unrecognized compensation costs related to outstanding RSUs. This amount is expected to be recognized over a weighted average period of 1.61 years.

A summary of the restricted stock units of the Company as of June 30, 2021, is presented below:

	Number of Shares			Weighted Average Grant Date Fair Value
Outstanding September 30, 2020		303,014		$	2.82
Granted		290,315		$	7.28
Released		(228,633	)	$	2.83
Forfeited/cancelled		(277	)	$	2.26
Outstanding June 30, 2021		364,419		$	6.37

Stock Option Summary Information

A summary of the activity in options to purchase the capital stock of the Company as of June 30, 2021, is presented below:

	Number of Shares			Weighted Average Exercise Price
Outstanding September 30, 2020		2,659,305		$	2.56
Granted		275,000		$	6.80
Forfeited/expired		(104,125	)	$	2.57
Exercised		(86,462	)	$	1.97
Outstanding June 30, 2021		2,743,718		$	3.00
Exerciseable June 30, 2021		1,520,058		$	2.19

Options outstanding are exercisable at prices ranging from $1.31 to $8.03 per share and expire over the period from 2021 to 2028 with an average life of 4.07 years. The aggregate intrinsic value of options outstanding and exercisable as of June 30, 2021, was $7,150 and $5,049, 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 $5.48 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, 2021, was $455 and proceeds from these exercises were $170. The total intrinsic value of stock options exercised during the nine months ended June 30, 2020, was $1,236 and proceeds from these exercises were $996.

The following table summarized information about stock options outstanding as of June 30, 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		2.20	$	1.64		328,116	$	1.64
$1.99	-	$1.99		937,500		2.69	$	1.99		937,500	$	1.99
$2.16	-	$3.17		72,500		0.60	$	2.52		72,500	$	2.52
$3.39	-	$3.40		1,133,727		5.34	$	3.39		146,005	$	3.40
$5.05	-	$8.03		265,000		6.85	$	6.75		35,937	$	6.87
				2,743,718		4.07	$	3.00		1,520,058	$	2.19

The Company recorded $84 and $186 of stock option compensation expense for employees, directors and consultants for the three months ended June 30, 2021, and 2020, respectively. The Company recorded $206 and $345 of stock option compensation expense for employees, directors and consultants for the nine months ended June 30, 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				Nine months ended
	June 30,				June 30,
	2021		2020		2021		2020
Cost of revenues	$	10	$	5	$	24	$	16
Selling, general and administrative		424		311		904		738
Research and development		12		6		28		22
	$	446	$	322	$	956	$	776