9. Shareholders’ Equity (Share-based Compensation and Share Repurchase Program)

Preferred Stock

The Company has authorized 20,000 shares of preferred stock of which 1,000 shares have been designated Series A Preferred Stock, and no shares were issued or are outstanding; 5,950 shares have been designated Series B Preferred Stock, of which 5,926 shares were issued and none remain outstanding, and 3,000 shares have been designated Series C Preferred Stock, of which 2,093 shares were issued and none remained outstanding as of September 30, 2024 and 2023. Based on the terms of the Series B Convertible Preferred Stock, if certain fundamental transactions were to occur, the Series B Convertible Preferred Stock would require redemption, which would preclude permanent equity classification on the accompanying consolidated balance sheets. The Series C Convertible Preferred Stock has a Liquidation Value equal to $1.00 per share and ranks pari passu with the Company’s Series B Convertible Preferred Stock and senior to all “Junior Securities” (including the Company’s Common Stock) with respect to any distribution of assets upon liquidation, dissolution or winding up of the Company, whether voluntary or involuntary.

Amended and Restated 2013 Incentive Stock Plan, as amended

As of September 30, 2024, there were vested and unvested shares of restricted stock and stock options outstanding under the Company’s Amended and Restated 2013 Incentive Stock Plan, as amended (“Incentive Stock Plan”). The Incentive Stock Plan, as amended, provides for total shares available for restricted stock and stock options of 15,000 (7,500 restricted stock shares and 7,500 stock option shares). The Incentive Stock Plan authorizes the Compensation Committee of the Board of Directors to grant either incentive or non-statutory stock options to employees. Vesting periods are established by the Compensation Committee at the time of grant.

As of September 30, 2024, there were 8,200 shares available to be granted under the Plan (4,052 shares available for restricted stock grants and 4,148 shares available for non-qualified stock option grants).

Restricted Stock

The Company granted 164 and 742 shares of restricted stock during fiscal 2024 and 2023, respectively. Of the restricted shares granted during fiscal 2023, 150 were granted to new members of the Board of Directors upon their election in fiscal 2023.

On September 27, 2022, the Company adopted a new annual incentive compensation program (“AICP”) for its executives to be administered under the Company’s Incentive Stock Plan, under which all shares granted in fiscal 2024 and the remaining 592 shares granted in fiscal 2023 were awarded. The AICP includes a long-term incentive (“LTI”) compensation plan in the form of restricted stock awards comprised of two components: one that vests based on future service only, and a second that vests based on future service and performance. Initial awards under both service-only and service plus performance-based components of the AICP LTI plan are determined based on financial performance measures for the immediately preceding fiscal year.

The Company granted 164 shares of restricted stock under the AICP during fiscal 2024 all of which were based on actual fiscal 2023 results and will cliff vest on December 1, 2026, based on future service only. No service plus performance-based restricted shares were granted in fiscal 2024 upon determination that financial targets set by the Company’s Board of Directors were not met for fiscal 2024.

During fiscal 2023, 551 of the 592 restricted shares granted under the AICP were granted based on actual results for fiscal 2022, as measured against corresponding financial targets for that year, and will cliff vest as of December 2, 2025. The remaining 41 of the 592 restricted shares granted represent the earned portion of the initial performance-based shares granted based on fiscal 2022 results, as adjusted for the outcome with regard to the financial targets applicable to those shares set by the Company’s Board of Directors for fiscal 2023.

Under the AICP LTI, the service plus performance-based awards for each fiscal year are scheduled in annual tranches to be granted over three subsequent years. The schedule for these is as follows:

Share-based compensation expense attributable to restricted stock was $292 and $318 in fiscal 2024 and 2023, respectively. As of September 30, 2024, there was approximately $304 of unrecognized compensation expense related to restricted stock currently outstanding and the weighted average remaining vesting period for those grants was 1.48 years.

Warrants

The Company had 77 warrants outstanding as of September 30, 2024 and September 30, 2023 with a weighted average exercise price per share of $2. The outstanding warrants had a weighted average remaining contractual life of 0.50 and 1.50 as of September 30, 2024 and 2023, respectively. No warrants were granted or expired during fiscal 2024 and 2023. 

Stock Options

All stock options outstanding as of September 30, 2024 and September 30, 2023 were non-qualified stock options, had exercise prices equal to the market price on the date of grant, and had expiration dates ten years from the date of grant.

The Company did not grant stock options in fiscal 2024, however, did grant 1,720 stock options in fiscal 2023. The Company’s stock options generally vest on annual schedules during periods ranging from two to four years from the date of grant, although some options are fully vested upon grant. Share-based compensation expense attributable to stock options is recognized over their estimated remaining lives and was $295 and $546 in fiscal 2024 and 2023, respectively. As of September 30, 2024, there was approximately $577 of unrecognized compensation expense related to unvested stock options outstanding, and the weighted average remaining vesting period for those options was 2.58 years.

The fair value of stock options granted was made using the Black-Scholes option pricing model and the following assumptions:

Share Repurchase Program

On April 27, 2023, the Company’s Board of Directors approved a share repurchase program authorizing the Company to purchase up to an aggregate of $20 million of the Company’s currently outstanding shares of common stock. The share repurchase program continued through December 31, 2023. The repurchase program did not obligate the Company to repurchase any number of shares of common stock. The share repurchase program was conducted in accordance with Rules 10b-5 and 10b-18 of the Securities Exchange Act of 1934, as amended. Subject to applicable rules and regulations, shares of common stock were purchased from time to time in the open market transactions and in amounts the Company deemed appropriate, based on factors such as market conditions, legal requirements, and other business considerations.

During fiscal 2024, the Company repurchased 2,717 shares of its common stock at a net cost of $1,575. During fiscal 2023, the Company repurchased 3,412 shares of its common stock at a net cost of $1,984. Upon conclusion of the share repurchase program, as of December 31, 2023, the Company had repurchased 6,129 shares in aggregate (accounting for approximately 5.4% of our issued and outstanding shares of common stock immediately prior to the program).

On August 13, 2024, the Company re-issued 642 of its treasury shares to fulfill commitments for the issuance of previously granted restricted share awards that became fully vested and unrestricted. The treasury shares were reissued in lieu of issuing 642 new shares of our common stock, therefore, while the Company’s total number of outstanding shares of common stock increased by 642, its total number of issued shares of common stock did not increase as a result of the reissuance of treasury shares instead.