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Note 15 - Share-based Compensation

6 Months Ended

Mar. 31, 2022

Notes to Financial Statements

Share-Based Payment Arrangement [Text Block]

15. SHARE-BASED COMPENSATION

Stock option plans

As of March 31, 2022, 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 (“RSUs”) and performance awards, to an aggregate of 10,000,000 new shares of common stock to employees, directors, advisors or consultants. As of March 31, 2022, there were options and restricted stock units outstanding covering 60,000 and 3,300,311 shares of common stock under the 2005 Equity Plan and the 2015 Equity Plan, respectively, and 4,525,315 shares of common stock available for grant, for a total of 7,885,626 shares of common stock 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 302,000 stock options granted during the six months ended March 31, 2022. There were 245,000 stock options granted during the six months ended March 31, 2021. The weighted average estimated fair value of employee stock options granted during the six months ended March 31, 2022 and 2022, was calculated using the Black-Scholes option-pricing model with the following weighted average assumptions (annualized percentages):

		Six months ended
		March 31,
		2022				2021
Volatility			48.1%				48.5%
Risk-free interest rate			1.5%				0.6%
Dividend yield			0.0%				0.0%
Expected term in years			6.8				6.8

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 2022 and did not pay a dividend in fiscal 2021.

As of March 31, 2022, there was approximately $1,114 of total unrecognized compensation costs related to outstanding employee stock options. This amount is expected to be recognized over a weighted average period of 1.6 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 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 has 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, 2022 and 2021.

Restricted stock units

On March 10, 2020, each non-employee 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 non-employee member of the Board of Directors received a grant of 27,883 RSUs that will vest 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 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. On June 7, 2021, 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. On September 1, 2021, two new members of the Board of Directors received a grant of 17,500 RSUs which will vest on March 16, 2022. These were issued at a market value of $184, which have and will be expensed on a straight-line basis through the March 16, 2022 vest date.

On March 15, 2022, 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 $407, which have and will be expensed on a straight-line basis through the March 15, 2023 vest date. On November 1, 2021, 10,000 RSUs were granted to a non-employee advisor that will vest on the first anniversary of the grant date. These were issued at a market value of $51, which have and will be expensed on a straight-line basis though the November 1, 2022 vest date. Also, during the six months ended March 31, 2022, there were 100,800 RSUs granted to employees that will vest over three years on the anniversary of the grant date. These were issued at a market value of $348, which have and will be expensed on a straight-line basis over the three-year life of the grants.

Compensation expense for RSUs was $586 and $1,023 for the three months and six months ended March 31, 2022, respectively. Compensation expense for RSUs was $249 and $387 for the three and six months ended March 31, 2021, respectively. As of March 31, 2022, there was approximately $1,181 of total unrecognized compensation costs related to outstanding RSUs. This amount is expected to be recognized over a weighted average period of 1.68 years.

A summary of the Company’s RSUs as of March 31, 2022 is presented below:

		Number of Shares				Weighted Average Grant Date Fair Value
Outstanding September 30, 2021			399,469			$	6.27
Granted			260,800			$	3.09
Released			(262,342	)		$	6.46
Forfeited/cancelled			(15,000	)		$	5.05
Outstanding March 31, 2022			382,927			$	4.03

Stock option summary information

A summary of the activity in options to purchase the capital stock of the Company as of March 31, 2022 is presented below:

		Number of Shares				Weighted Average Exercise Price
Outstanding September 30, 2021			2,745,384			$	3.02
Granted			302,000			$	4.87
Forfeited/expired			-			$	-
Exercised			(70,000	)		$	2.43
Outstanding March 31, 2022			2,977,384			$	3.23
Exerciseable March 31, 2022			1,562,503			$	2.42

Options outstanding are exercisable at prices ranging from $1.31 to $8.03 per share and expire over the period from 2022 to 2028 with an average life of 3.72 years. The aggregate intrinsic value of options outstanding and exercisable as of March 31, 2022 was $1,067 and $1,067, 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 $2.75 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, 2022 was $86 and proceeds from these exercises was $170. The total intrinsic value of stock options exercised during the six months ended March 31, 2021 was $455 and proceeds from these exercises was $170.

The following table summarized information about stock options outstanding as of March 31, 2022:

								Weighted Average				Weighted Average								Weighted Average
*Range of*				*Number*				*Remaining*				*Exercise*				*Number*				*Exercise*
*Exercise Prices*				*Outstanding*				*Contractual Term*				*Price*				*Exercisable*				*Price*
$1.31	-	$1.86			319,157				1.51			$	1.64				319,157			$	1.64
$1.99	-	$1.99			937,500				1.94			$	1.99				937,500			$	1.99
$3.39	-	$3.39			800,000				4.51			$	3.39				-			$	-
$3.40	-	$4.99			635,727				5.53			$	4.10				237,745			$	3.60
$5.05	-	$8.03			285,000				5.80			$	6.66				80,780			$	6.94
					2,977,384				3.72			$	3.23				1,575,182			$	2.42

The Company recorded $151 and $79 of stock option compensation expense for employees, directors and consultants for the three months ended March 31, 2022, and 2021, respectively. The Company recorded $272 and $123 of stock option compensation expense for employees, directors and consultants for the six months ended March 31, 2022, and 2021, 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,
		2022				2021				2022				2021
Cost of revenues			28			$	9				43				15
Selling, general and administrative			686				309				1,217				479
Research and development			23				10				35				16
		$	737			$	328			$	1,295			$	510