Note 7.Equity and Share-based Payments

 

In March 2008, the Company’s shareholders approved the 2008 Stock Incentive Plan which is utilized to provide equity opportunities and performance–based incentives to attract, retain and motivate those persons who make (or are expected to make) important contributions to the Company.  A total of 2 million shares are available for issuance under the plan. As of September 30, 2014, a total of 1,054,018 shares have been granted under the plan, of which 150,000 shares were in the form of stock options and the remainder were in the form of restricted stock or other share grants. 

 

Stock Option Plans

 

Under the Company’s previous share-based long-term incentive compensation plan, the 1997 Stock Option Plan, the Company granted non-qualified stock options to employees. There are no shares available for grant under this plan which expired on December 31, 2006. Options issued under this plan expire 10 years after the date of grant and generally vested 1/36 per month, with full vesting after three years. Under the Company’s 2008 Stock Incentive Plan, options issued expire 10 years after the date of grant and vest 1/36 per month, with full vesting after three years. The Company did not grant any options during the years ended September 30, 2014, 2013 and 2012.

 

Compensation expense is recognized only for share-based payments expected to vest. The Company estimates forfeitures at the date of grant based on historical experience and future expectations. Stock compensation expense related to options for the years ended September 30, 2014, 2013 and 2012 was approximately $0,  $0 and $60,000, respectively.

 

Option Activity

 

The following table summarizes the stock options outstanding and exercisable at September 30, 2014:

 

 

 

During the year ended September 30, 2014, stock option holders exercised 60,000 stock options, 30,000 shares using the cashless exercise option available under the plan which entitled them to 16,963 shares of common stock and 30,000 shares using the cash exercise option available under the plan resulting in cash proceeds of $117,600.  During the year ended September 30, 2013, stock option holders exercised 36,250 stock options, using the cashless exercise option available under the plan which entitled them to 28,172 shares of common stock.  During the year ended September 30, 2012, stock option holders exercised 1,557,750 stock options, using the cashless exercise option available under the plan which entitled them to 1,166,017 shares of common stock.  Some option holders surrendered 363,035 of the shares due them in payment of taxes, bringing the net number of shares issued to 802,982 for fiscal year 2012. 

 

The aggregate intrinsic value in the table above is before income taxes, based on the Company’s closing stock price of $3.49 on the last day of business for the period ended September 30, 2014. The total intrinsic value of options exercised during the years ended September 30, 2014, 2013 and 2012,  was approximately $154,000, $272,000 and $6,888,000, respectively.    

 

Restricted Stock

 

The Company issues restricted stock to employees, directors and consultants. Such issuances may have vesting periods that range from one to three years. In addition, the Company has issued stock awards to certain employees that provide for future issuance contingent on continued employment for periods that range from one to three years.

 

A summary of the non-vested stock activity for fiscal years 2014, 2013 and 2012 is summarized in the table below:

 

 

 

The Company granted a total of 213,576,  64,676 and 52,500 shares of restricted stock or shares issuable pursuant to promises to issue shares of common stock during the years ended September 30, 2014, 2013 and 2012, respectively. The fair value of the awards granted was approximately $1,665,000,  $471,000 and $218,000 for the years ended September 30, 2014, 2013 and 2012, respectively. All such shares of restricted stock vest and all such shares must be issued pursuant to the vesting period noted, provided the grantee has not voluntarily terminated service or been terminated for cause prior to the vesting or issuance date.  There were 250,  7,000 and 2,500 shares of restricted stock forfeited during the year ended September 30, 2014, 2013 and 2012, respectively. 

 

The Company recognized share-based compensation expense for restricted stock or promises to issue shares of common stock of approximately $859,000,  $728,000 and $782,000 for the years ended September 30, 2014, 2013 and 2012, respectively, $256,000,  $227,000 and $199,000 of which was included in accrued expenses at year end since the related shares have not yet been issued at September 30, 2014, 2013 and 2012, respectively.  This expense was included in selling, general and administrative expenses for the respective periods.  The Company recorded a tax benefit of stock-based compensation expenses of approximately $204,000 for the year ended September 30, 2014.  For the years ended September 30, 2013 and 2012, the Company did not recognize a tax benefit for stock-based compensation expense based on the election of the “with and without” approach.  As of September 30, 2014, there was approximately $1,032,000, representing approximately 141,000 unvested shares, of total unrecognized compensation cost related to non-vested restricted stock compensation arrangements granted under the incentive plans. This unrecognized cost will be recognized over the weighted average period of the next  1.84 years.

 

Common Stock Purchase Warrants

 

The Company did not issue any common stock purchase warrants in fiscal year 2014, 2013 or 2012.  In fiscal year 2013, a warrant holder exercised 52,000 warrants using the cashless exercise option available within the warrant agreements which entitled the warrant holder to 43,465 shares of common stock.  In fiscal year 2012, a warrant holder exercised 10,000 warrants which provided proceeds of $13,000. The warrant holder also exercised 18,000 warrants using the cashless exercise option available within the warrant agreements which entitled the warrant holder to 14,795 shares of common stock.  There is no unrecognized compensation cost related to warrants as of September 30, 2014.   

 

At September 30, 2014 and 2013, there were no outstanding warrants.

 

Preferred Stock

 

The Company has 5,000,000 shares designated as Class A Preferred Stock with a par value of $.01 per share. There are 1,040,000 shares of Class A Preferred Stock - Series 1 authorized; 1,500,000 shares of Class A Preferred Stock- Series 2 authorized; and 700,000 shares of Class A Preferred Stock - Series 3 authorized. There were no shares of Class A Preferred Stock of any series issued and outstanding in fiscal 2014 or 2013.    The Company has 15,000 shares designated as Class B Preferred Stock with a par value of $.50 per share. There were no shares of Class B Preferred Stock issued and outstanding in fiscal 2014 or 2013.