Quarterly report pursuant to Section 13 or 15(d)

9. Stock Compensation

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9. Stock Compensation
6 Months Ended
Sep. 30, 2016
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]  
Stock Compensation

The following tables summarize share-based compensation expenses relating to Restricted Stock Units (“RSU”s) and options granted and the effect on basic and diluted loss per common share during the three and six month periods ended September 30, 2016 and 2015:

 

    Three Months
Ended
September 30,
2016
    Three Months
Ended
September 30,
2015
    Six Months
Ended
September 30,
2016
    Six Months
Ended
September 30,
2015
 
Vesting of stock options and restricted stock units   $ 1,523,280     $ 50,711     $ 1,573,991     $ 101,421  
Total stock-based compensation expense   $ 1,523,280     $ 50,711     $ 1,573,991     $ 101,421  
                                 
Weighted average number of common shares outstanding – basic and diluted     7,756,883       7,610,459       7,690,369       7,167,903  
                                 
Basic and diluted loss per common share attributable to stock-based compensation expense   $ (0.20 )   $ (0.01 )   $ (0.20 )   $ (0.01 )

 

All of the stock-based compensation expense recorded during the six months ended September 30, 2016 and 2015, which totaled $1,573,991 and $101,421, respectively, is included in payroll and related expense in the accompanying condensed consolidated statements of operations.  Stock-based compensation expense recorded during the six months ended September 30, 2016 and 2015 represented an impact on basic and diluted loss per common share of $(0.20) in both periods.

  

We review share-based compensation on a quarterly basis for changes to the estimate of expected award forfeitures based on actual forfeiture experience. The cumulative effect of adjusting the forfeiture rate for all expense amortization is recognized in the period the forfeiture estimate is changed. The effect of forfeiture adjustments for the six months ended September 30, 2016 was insignificant.

 

Restricted Stock Unit Grants to Directors and Executive Officers

 

On August 9, 2016, our Board of Directors (the “Board”) granted RSUs to certain of our officers and directors as set forth below. The RSUs represent the right to be issued on a future date shares of our common stock for vested RSUs. Our Compensation Committee recommended the grants based on a compensation assessment provided by a third-party compensation consulting firm engaged by us that developed a peer group of companies for market assessment and analyzed compensation at such companies. 

 

The consultant recommended beneficial ownership targets, which we previously disclosed in our Proxy Statement filed on February 23, 2016, in connection with our Annual Meeting of Stockholders held on March 29, 2016. In connection with the Annual Meeting, our stockholders approved our Amended 2010 Stock Incentive Plan, which included an increase in the number of shares available for grant under the plan in part to accommodate equity awards recommended by the Compensation Committee, and our stockholders approved our executive compensation as disclosed in the Proxy Statement pursuant to Item 402 paragraphs (m) through (q) of Regulation S-K.

 

To Mr. James A. Joyce, an aggregate of 634,000 RSUs valued at $6.28 per share, based on the August 9, 2016 closing price of the common stock. 158,500 of the RSUs are deemed vested upon grant and an additional 39,625 RSUs will vest each quarter beginning on January 1, 2017. This grant is intended to increase Mr. Joyce’s beneficial ownership of our common stock to 9.0%, which target was recommended in 2015 and in June 2016 by the compensation consultant engaged by us. Previously, in 2004, the Board had approved a beneficial ownership target of 15% for Mr. Joyce. However, Mr. Joyce has agreed to the modified target of 9.0%.

 

To Mr. Rodney S. Kenley, an aggregate of 52,000 RSUs valued at $6.28 per share, based on the August 9, 2016 closing price of the common stock. 13,000 of the RSUs are deemed vested upon grant and an additional 3,250 RSUs will vest each quarter beginning on January 1, 2017.

 

To Mr. James B. Frakes, an aggregate of 52,000 RSUs valued at $6.28 per share, based on the August 9, 2016 closing price of the common stock. 13,000 of the RSUs are deemed vested upon grant and an additional 3,250 RSUs will vest each quarter beginning on January 1, 2017.

 

To each of our non-employee directors, Mr. Franklyn S. Barry, Jr., Mr. Edward G. Broenniman and Dr. Chetan S. Shah, 16,432 RSUs valued at an aggregate of $105,000, based on the average of the closing prices of the common stock for the five trading days preceding and including August 9, 2016. These grants represent (a) $70,000 worth of RSUs representing two years of grants under the amended 2012 Non-Employee Directors Compensation Program (the “2012 Program”) because more than two years have elapsed since Messrs. Barry and Broenniman and Dr. Shah received grants under the program, all of which RSUs are deemed vested upon grant and (b) $35,000 worth of RSUs representing the grant covering the fiscal year ending March 31, 2017, of which one-quarter are deemed vested upon grant and the remaining portion will vest ratably at September 30, 2016, at December 31, 2016 and at March 31, 2017.

 

The RSUs were granted under our Amended 2010 Stock Incentive Plan and we recorded expense of $1,523,280 in the three months ended September 30, 2016 related to the RSU grants.

 

Changes to 2012 Non-Employee Directors Compensation Program

 

In July 2012, the Board approved the 2012 Program, which modified and superseded the 2005 Directors Compensation Program that had been in effect previously. On June 6, 2014, the Board approved certain changes to the 2012 Program, and on August 9, 2016, the Board approved further modifications to the program. Under the modified 2012 Program, in which only non-employee directors may participate, a new eligible director will receive an initial grant of $50,000 worth of RSUs or, at the discretion of the Board, options to acquire shares of Common Stock. RSUs granted under this provision will be valued based on the average of the closing prices of the Common Stock for the five trading days preceding and including the date of grant and will vest at a rate determined by the Board in its discretion. Options granted under this provision will be valued at the exercise price, which will be based on the average of the closing prices of the Common Stock for the five trading days preceding and including the date of grant. Such options will have a term of ten years and will vest at a rate determined by the Board in its discretion.

 

At the beginning of each fiscal year, each existing director eligible to participate in the 2012 Program will receive a grant of $35,000 worth of RSUs or, at the discretion of the Board, options to acquire shares of Common Stock. RSUs granted under this provision will be valued based on the average of the closing prices of the Common Stock for the five trading days preceding and including the first day of the fiscal year (or preceding and including the date of grant, if such grant is not made on the first day of the fiscal year) and will vest at a rate determined by the Board in its discretion. Options granted under this provision will be valued at the exercise price, which will be based on the average of the closing prices of the Common Stock for the five trading days preceding and including the first day of the fiscal year (or preceding and including the date of grant, if such grant is not made on the first day of the fiscal year). Such options will have a term of ten years and will vest at a rate determined by the Board in its discretion.

 

In lieu of per meeting fees, under the 2012 Program eligible directors will receive an annual Board retainer fee of $30,000. The modified 2012 Program also provides for the following annual retainer fees: Audit Committee Chair - $5,000, Compensation Committee chair - $5,000, Nominating Committee Chair - $5,000, Audit Committee member - $4,000, Compensation Committee member - $4,000 and Lead independent director (currently an open position) - $15,000.

 

The RSU grants and the changes to the 2012 Program were approved and recommended by our Compensation Committee prior to approval by the Board. 

 

RSUs outstanding that have vested and are expected to vest as of September 30, 2016 are as follows:

 

    Number of RSUs  
Vested     184,500  
Expected to vest     561,708  
Total     746,208  

 

During the three months ended September 30, 2016, 30,131 RSUs held by our outside directors were exchanged into the same number of shares of our common stock. As two of our three outside directors elected to return 40% of their RSU’s in exchange for cash in order to pay their withholding taxes on the share issuances, 10,957 of the RSUs were cancelled and we paid a total of $67,343 in cash to those two outside directors.

 

Stock Option Activity

 

There were no stock option grants during the six months ended September 30, 2016 or September 30, 2015.

 

Options outstanding that have vested and are expected to vest as of September 30, 2016 are as follows:

 

    Number of
Shares
    Weighted
Average
Exercise
Price
    Weighted
Average
Remaining
Contractual
Term in
Years
 
                         
Vested     417,047     $ 11.20       4.77  
Expected to vest     17,500     $ 5.00       7.00  
Total     434,547                  

 

There was no stock option activity during the six months ended September 30, 2016 other than the expiration of 4,000 stock options during the period.

 

On September 30, 2016, our stock options had no intrinsic value since the closing price on that date of $5.02 per share was below the weighted average exercise price of our stock options.

 

At September 30, 2016, there was approximately $3,509,367 of unrecognized compensation cost related to share-based payments, which is expected to be recognized over a weighted average period of 2.87 years.