Note 5: Stock-based Compensation

 

From time to time, the Company grants restricted stock awards and stock options to officers, directors, employees and consultants. Such awards are valued based on the grant date fair value of the instruments, net of estimated forfeitures. The value of each award is amortized on a straight-line basis over the requisite service period.

 

Stock Options

 

During the three months ended December 31, 2011 and 2010, the Company recognized compensation expense of $1,894 and $23,499, respectively, related to stock option awards granted to certain employees and executives based on the grant date fair value of the awards, net of estimated forfeitures. The Company used the estimated forfeiture rate of awards of 50% based on actual forfeiture experience and other factors.

 

 

The following represents a summary of stock option activity for the three months ended December 31, 2011:

 

 

						Weighted				Weighted
						Average				Average				Aggregate
		Number of				Exercise				Remaining				Intrinsic
		Shares				Price				Contractual Life				Value
Outstanding at September 30, 2011			24,013
Granted at market price
Exercised			—
Forfeited			—
Outstanding at December 31, 2011			24,013			$	3.64				9.4			$	—
Exercisable			5,263			$	3.77				9.4			$	—

 

As discussed in Note 13, subsequent to December 31, 2011, the Company terminated the employment of its President and Chief Executive Officer. Pursuant to the terms of such officer’s employment agreement with the Company, this termination will result in the forfeiture of 13,487 of outstanding and unvested stock options that are included in the amounts outstanding at December 31, 2011. Excluding such stock options, as of December 31, 2011, the Company has $7,793 of unrecognized compensation expense (net of estimated forfeitures) associated with stock option awards which the Company expects will be recognized over a weighted-average period of two years.

 

Restricted Stock Awards

 

From time to time, the Company also has historically granted shares of restricted stock to certain individuals. As shown in the following table, there was no activity with respect to compensation-related restricted stock grants during the three months ended December 31, 2011:

 

Outstanding (unvested) at September 30, 2011			1,342
Outstanding (unvested) at December 31, 2011			1,342

 

As the Company’s outstanding unvested stock was reduced to an immaterial amount, the Company recognized all expense associated with unvested awards based on estimated forfeiture rates ranging from 25 percent to 70 percent based on the outstanding duration of the awards during the three months ended December 31, 2010. As a result of these actions, the Company recognized an aggregate expense of $17,885 during the three months ended December 31, 2010. To the extent that actual forfeiture rates differ from estimates, future expense recognition or reversals could result. No adjustments have been made to compensation expense associated with these restricted stock awards subsequent to December 31, 2011.

 

Stock Awards Granted to Directors

 

In September 2011, in an effort to preserve cash, the Board, after consultation with the Compensation Committee, entered into an agreement to compensate members of the Board for their monthly retainer and other services as directors and/or members of the Board’s various standing committees through the award of shares of the Company’s common stock under the Company’s Amended and Restated 2003 Stock Plan (the “2003 Stock Plan”). Under the terms of this agreement, each non-employee director receives a monthly award of fully vested shares of common stock, with the number of shares determined by dividing $3,833 by the closing market price of the Company’s common stock on the grant date. The Company granted an aggregate of 31,376 shares of common stock and recognized expense of $46,000 related to this agreement during the three months ended December 31, 2011. No such amounts were recognized during the three months ended December 31, 2010.