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Compensatory Equity Incentive Plan and Other Equity Incentives
 6 Months Ended
Dec. 31, 2011
Compensatory Equity Incentive Plan And Other Equity Incentives  
Compensatory Equity Incentive Plan and Other Equity Incentives

7.  Compensatory Equity Incentive Plan and Other Equity Incentives

 

Share-Based Compensation Arrangements—The Company’s Amended and Restated Omnibus Incentive Plan (the “Plan”) included several available forms of stock compensation of which incentive stock options and restricted stock awards have been granted to date.

 

The 2004 Employee Stock Purchase Plan (“ESPP”) permits employees to purchase shares of Class A common stock through payroll deductions, which may not exceed 15% of an employee’s compensation, at a price not less than 85% of the market value of the stock on specified dates (June 30 and December 31). In no event may any participant purchase more than $25,000 worth of shares of Class A common stock in any calendar year and an employee may purchase no more than 4,000 shares on any purchase date within an offering period of 12 months and 2,000 shares on any purchase date within an offering period of six months. The discount on market value is included in selling, general and administrative expense in the accompanying statements of operations and was $806 and $486 for the six months ended December 31, 2011 and 2010, respectively.

 

These two plans are summarized below:

 

                   
          Award Shares     Available for  
    Award Shares     Outstanding     Issuance  
    Authorized     at December 31,     at December 31,  
Equity Compensation Arrangement         2011     2011  
Amended and Restated Omnibus Incentive Plan     1,715,625       1,184,933       85,299  
Employee Stock Purchase Plan     200,000       -       126,995  
                         
      1,915,625       1,184,933       212,294  

 

Grant Date Fair Values and Underlying Assumptions; Contractual Terms—The Company estimates the fair value of each stock option as of the date of grant using the Black-Scholes-Merton pricing model. The ESPP fair value is the amount of the discounted market value the employee obtains at the date of the purchase transaction.

 

For stock options granted in the six month period ended December 31, 2011 and 2010, the Company estimated the fair value of each stock option as of the date of grant using the following assumptions:

 

    Six Months Ended     Six Months Ended  
    December 31, 2011     December 31, 2010  
Expected volatility     121%       117%  
Weighted average expected volatility     121%       117%  
Dividend yields     0%       0%  
Risk-free interest rate     1.59%       1.18% - 1.218%  
Expected term, in years     3 - 7       3 - 7  

 

Most options granted under the Plan vest ratably over two to four years and are generally exercisable for ten years.  The assumed forfeiture rates used in calculating the fair value of options and restricted stock unit grants with both performance and service conditions were 20% and 0%, respectively, for the six months ended December 31, 2011 and 49% and 0%, respectively, for the six months ended December 31, 2010.  The volatility rate and expected term are based on seven-year historical trends in Class A common stock closing prices and actual forfeitures.  The interest rate used is the U.S. Treasury interest rate for constant maturities.

 

Information Regarding Current Share-Based Compensation Awards—A summary of the activity for share-based compensation awards in the six months ended December 31, 2011 is presented below:  

 

                               
                      Restricted  
          Stock Options           Stock Units ("RSUs")  
          Weighted     Weighted           Weighted  
          Average     Average           Average  
          Exercise     Remaining           Remaining  
          Price     Contract           Contract  
    Shares     (per share)     Life (YRS)     Shares     Life (YRS)  
June 30, 2011     500,233     $ 3.01       6.9       434,700       0.9  
                                         
                                         
Granted     90,000       1.39       9.8       160,000       2.8  
Exercised     -       -       -       -       -  
Cancelled     -       -       -       -       -  
                                         
December 31, 2011     590,233     $ 2.76       6.9       594,700       1.2  
                                         
                                         
                                         
Awards exercisable/                                        
vested as of                                        
December 31, 2011     348,358     $ 3.17       5.6       334,700       -  
                                         
                                         
Awards unexercisable/                                        
unvested as of                                        
December 31, 2011     241,875     $ 2.18       8.8       260,000       1.2  
      590,233                       594,700          

 

The weight average fair value of shares awarded for the six months ended December 31, 2011 was:

 

    Stock              
    Options     RSUs     All Awards  
Weighted average fair value                  
of share awards granted for the six months ended                  
December 31, 2011   $ 1.21     $ 1.35     $ 1.30  
                         

 

The total intrinsic value of options outstanding and exercisable at December 31, 2011 and 2010 was $1,068 and $43,645, respectively.  

 

The total intrinsic value of RSUs exercised during the six months ended December 31, 2011 and 2010 was $0 and $0, respectively.

 

The total intrinsic value of RSUs outstanding and exercisable at December 31, 2011 and 2010 was $465,129 and $379,536, respectively.

 

The total fair value of RSUs vested during the six months ended December 31, 2011 and 2010 was $225,000 and $15,250, respectively.

 

The total fair value of option shares vested during the six months ended December 31, 2011 and 2010 was $81,942, and $128,369, respectively.

 

As of December 31, 2011, there was $587,443 of total unrecognized compensation cost related to non-vested share-based compensation arrangements (including share options and restricted stock units) granted under the Plan.

 

The compensation cost is expected to be recognized as follows:

 

          Restricted        
    Stock     Stock        
    Options     Units     Total  
Six months ended June 30, 2012   $ 39,526     $ 94,542     $ 134,068  
Year ended June 30, 2013     79,057       168,420       247,477  
Year ended June 30, 2014     64,254       94,570       158,824  
Year ended June 30, 2015     23,587       18,852       42,439  
Year ended June 30, 2016     4,635       -       4,635  
    $ 211,059     $ 376,384     $ 587,443  

 

The table above does not include shares under the Company’s ESPP, which has purchase settlement dates in the second and fourth fiscal quarters of each year. The Company’s ESPP is not administered with a look-back option provision and, as a result, there is not a population of outstanding option grants during the employee contribution period.

 

Restricted stock unit awards vest immediately or from two to four years from the date of grant.

 

The Company issues new shares of Class A common stock upon the exercise of stock options. The following table is a summary of the number and weighted average grant date fair values regarding the Company’s unexercisable/unvested awards as of December 31, 2011 and changes during the six months then ended:

 

    Stock Options Shares     RSU Shares     Total Shares   Weighted-Average  
                    Grant Date Fair Values  
Unexercisable/unvested awards                   (per share)  
June 30, 2011     182,500       200,000       382,500     $ 2.53  
Granted     90,000       160,000       250,000       1.30  
Vested     (30,625 )     (100,000 )     (130,625 )     2.35  
Cancelled/Issued/Forfeited     -       -       -       -  
December 31, 2011     241,875       260,000       501,875     $ 2.41  

 

Financial Statement Effects and Presentation—The following table shows total stock-based compensation expense for the six months ended December 31, 2011 and 2010 included in the consolidated statements of operations:

 

    Six Months Ended     Six Months Ended  
    December 31,     December 31,  
    2011     2010  
             
Stock options   $ 46,570     $ 39,579  
                 
RSU     91,406       64,321  
                 
     Total   $ 137,976     $ 103,900  
                 
The amounts above were included in:                
General & administrative   $ 128,104     $ 93,777  
Cost of sales     4,536       4,513  
New product development     5,335       5,610  
    $ 137,976     $ 103,900