NOTE 5 – 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 this plan. As of March 31, 2014,  1,037,268 shares had 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 Options

 

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 three and six months ended March 31, 2014 and 2013.

 

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. No  stock compensation expense related to options was recognized for the three and six months ended March 31, 2014 and 2013. 

 

No stock options were exercised during the six months ended March 31, 2014 and 2013.

 

The following table summarizes the stock options outstanding and exercisable at March 31, 2014:

 

 

 

The aggregate intrinsic value in the table above is before income taxes, based on the closing price of the Company’s common stock of $7.76 per share as of the last business day of the period ended March 31, 2014.  As of March 31, 2014, the Company had no unrecognized compensation expense relating to outstanding stock options as all outstanding stock options were fully vested.  The deferred tax asset and realized benefit from stock options exercised and other share-based payments for the three and six months ended March 31, 2014, was not recognized, based on the Company’s election of the “with and without” approach.

 

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.

The Company granted a total of 168,910 shares of restricted stock or shares issuable pursuant to promises to issue shares of common stock during the six months ended March 31, 2014. The fair value of the awards granted was approximately $1,456,000. All such shares of restricted stock vest and all such shares must be issued at the end of the applicable period, provided the grantee has not voluntarily terminated service or been terminated for cause prior to the vesting or issuance date. There were no shares of restricted stock forfeited during the three and six months ended March 31, 2014. 

 

The Company granted a total of 49,750 shares of restricted stock or shares issuable pursuant to promises to issue shares of common stock during the six months ended March 31, 2013. The fair value of the awards granted was approximately $350,000. All such shares of restricted stock vest and all such shares must be issued at the end of the applicable period, provided the grantee has not voluntarily terminated service or been terminated for cause prior to the vesting or issuance date.  There were no shares of restricted stock forfeited during the three and six months ended March 31, 2013. 

 

The Company recognized share-based compensation expense for restricted stock or promises to issue shares of common stock of approximately $199,000 and $404,000 for the three and six months ended March 31, 2014, respectively, $123,000 of which was included in accrued expenses at the six months then ended since the related shares had not yet been issued at March 31, 2014.  Share-based compensation expense for restricted stock or promises to issue shares of common stock for the three and six months ended March 31, 2013 was approximately $173,000 and $393,000, respectively, of which $116,000 was included in accrued expenses at March 31, 2013.  This compensation expense was included in operating expenses on the accompanying Unaudited Condensed Consolidated Statements of Income for the three and six months ended March 31, 2014 and 2013. As of March 31, 2014, there was approximately $1,280,000, representing approximately 152,000 unvested shares, of total unrecognized compensation cost related to non-vested restricted stock compensation arrangements granted under the Company’s equity compensation plans. This unrecognized cost will be recognized over the weighted average period of the next 2.22 years.

 

Common Stock Purchase Warrants

 

The Company did not issue any common stock purchase warrants during the periods ended March 31, 2014 or 2013.  During the six months ended March 31, 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.  As of March 31, 2014, there are no outstanding warrants.