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Note 15 - Share-based Compensation

9 Months Ended

Jun. 30, 2022

Notes to Financial Statements

Share-Based Payment Arrangement [Text Block]

15. SHARE-BASED COMPENSATION

Stock option plans

As of June 30, 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 the 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 June 30, 2022, there were options and restricted stock units outstanding covering 10,000 and 3,291,725 shares of common stock under the 2005 Equity Plan and the 2015 Equity Plan, respectively, and 4,515,315 shares of common stock available for grant, for a total of 7,817,040 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 322,000 stock options granted during the nine months ended June 30, 2022. There were 275,000 stock options granted during the nine months ended June 30, 2021. The weighted average estimated fair value of employee stock options granted during the nine months ended June 30, 2022 and 2021, was calculated using the Black-Scholes option-pricing model with the following weighted average assumptions (annualized percentages):

		Nine months ended
		June 30,
		2022				2021
Volatility			48.2	%			48.5	%
Risk-free interest rate			1.4	%			0.6	%
Dividend yield			0.0	%			0.0	%
Expected term in years			6.7				6.6

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 June 30, 2022, there was approximately $1,290 of total unrecognized compensation costs related to outstanding employee stock options. This amount is expected to be recognized over a weighted average period of 1.4 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

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 nine months ended June 30, 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 and 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 and were 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 vested on March 16, 2022. These were issued at a market value of $184 and were 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 nine months ended June 30, 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 $193 and $1,216 for the three months and nine months ended June 30, 2022, respectively. Compensation expense for RSUs was $363 and $750 for the three and nine months ended June 30, 2021, respectively. As of June 30, 2022, there was approximately $1,204 of total unrecognized compensation costs related to outstanding RSUs. This amount is expected to be recognized over a weighted average period of 1.4 years.

A summary of the Company’s RSUs as of June 30, 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			(270,262	)		$	6.42
Forfeited/cancelled			(15,666	)		$	5.15
Outstanding June 30, 2022			374,341			$	4.00

Stock option summary information

A summary of the activity in options to purchase the capital stock of the Company as of June 30, 2022 is presented below:

		Number of Shares				Weighted Average Exercise Price
Outstanding September 30, 2021			2,745,384			$	3.02
Granted			322,000			$	4.77
Forfeited/expired			(10,000	)		$	5.43
Exercised			(130,000	)		$	1.95
Outstanding June 30, 2022			2,927,384			$	3.26
Exerciseable June 30, 2022			1,589,114			$	2.57

Options outstanding are exercisable at prices ranging from $1.31 to $8.03 per share and expire over the period from 2022 to 2029 with an average life of 3.53 years. The aggregate intrinsic value of options outstanding and exercisable as of June 30, 2022 was $1,585 and $1,584, 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 $3.25 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, 2022 was $191 and proceeds from these exercises was $253. The total intrinsic value of stock options exercised during the nine months ended June 30, 2021 was $455 and proceeds from these exercises was $170.

The following table summarized information about stock options outstanding as of June 30, 2022:

Range of Exercise Prices				Number Outstanding				Weighted Average Remaining Contractual Term				Weighted Average Exercise Price				Number Exercisable				Weighted Average Exercise Price
$1.31	-	$1.86			259,157				1.53			$	1.70				259,157			$	1.70
$1.99	-	$1.99			937,500				1.69			$	1.99				937,500			$	1.99
$3.21	-	$3.21			20,000				6.85			$	3.21				-			$	-
$3.39	-	$3.39			800,000				4.26			$	3.39				-			$	-
$3.43	-	$8.03			910,727				5.28			$	4.88				392,457			$	4.53
					2,927,384				3.53			$	3.26				1,589,114			$	2.57

The Company recorded $162 and $84 of stock option compensation expense for employees, directors and consultants for the three months ended June 30, 2022, and 2021, respectively. The Company recorded $434 and $206 of stock option compensation expense for employees, directors and consultants for the nine months ended June 30, 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								Nine Months Ended
		June 30,								June 30,
		2022				2021				2022				2021
Cost of revenues			10			$	10				53				24
Selling, general and administrative			327				424				1,544				904
Research and development			18				12				53				28
		$	355			$	446			$	1,650			$	956

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- Definition

The entire disclosure for share-based payment arrangement.

+ References

Reference 1: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 718
-SubTopic 10
-Section 50
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-URI https://asc.fasb.org/extlink&oid=128089324&loc=d3e5070-113901

Reference 2: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 718
-URI https://asc.fasb.org/topic&trid=2228938

Reference 3: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 718
-SubTopic 10
-Section 50
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-Publisher FASB
-Name Accounting Standards Codification
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Reference 5: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
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-SubTopic 10
-Section 50
-Paragraph 2
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-URI https://asc.fasb.org/extlink&oid=128089324&loc=d3e5070-113901

Reference 6: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
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-Section 50
-Paragraph 2
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