DATAWATCH CORP - FORM 10-Q - XML - IDEA: XBRL DOCUMENT - August 11, 2011

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v2.3.0.11
Shareholders' Equity
 9 Months Ended
Jun. 30, 2011
Shareholders' Equity  
Shareholders' Equity

Note 4 – Shareholders' Equity

Share-based compensation expense for the three months ended June 30, 2011 and 2010 was $81,000 and
$47,000, respectively, and $145,000 and $148,000 for the nine months ended June 30, 2011 and 2010,
respectively, as included in the following expense categories:

 

Three months ended June 30,

 

Nine months ended June 30,

 

2011

 

 

2010

 

2011

 

2010

 

 

 

 

(In thousands)

 

 

 

Sales and marketing

$

34

$

10

$

45

$

33

Engineering and product development

 

3

 

3

 

6

 

10

General and administrative

 

44

 

34

 

94

 

105

 

$

81

$

47

$

145

$

148

 

The Company's stock compensation plans provide for the granting of restricted stock units and either
incentive or non-qualified stock options to employees and non-employee directors. Options and restricted stock units are subject to terms and conditions determined by the Compensation and Stock Committee of the Board of Directors. Options generally vest over a three year period beginning three months from the date of grant and expire either seven or ten years from the date of grant. Restricted stock units vest annually over a three year period. Through April 25, 2011, restricted stock units and stock options were granted under the 2006 Equity Compensation and Incentive Plan and thereafter under the 2011 Equity Compensation and Incentive Plan.

Stock Options

The Company uses the Black-Scholes option-pricing model to calculate the fair value of options. The key
assumptions for this valuation method include the expected life of the option, stock price volatility, risk-free  interest rate and dividend yield. The weighted-average fair value of options granted under the stock option plans for the three months ended June 30, 2011 was $2.89. No options were granted under the stock option plans for the three months ended June 30, 2010. The weighted-average fair values of options granted under the stock option plans for the nine months ended June 30, 2011 and 2010 were $2.16 and $1.43, respectively. The total intrinsic value of options exercised during the three and nine months ended June 30, 2011 was approximately $538,000 and $663,000, respectively. No options were exercised during the three or nine months ended June 30, 2010. Total cash received from option exercises during the three and nine months ended June 30, 2011 was $298,000 and $388,000, respectively. As of June 30, 2011, there was $454,000 of total unrecognized compensation cost related to non-vested stock option arrangements, which is expected to be recognized over a weighted-average period of 2.81 years.

Many of the assumptions used in the determination of compensation expense are judgmental and highly
volatile. The table below indicates the key assumptions used in the option valuation calculations for options
granted in the nine months ended June 30, 2011 and 2010:

 

2011

 

2010

 

Expected life

5 years

 

5 years

 

Expected volatility

66.26 – 67.32

%

75.33

%

Weighted-average volatility

66.56

%

75.33

%

Risk free interest rate

1.49 – 2.38

%

1.28

%

Dividend yield

0.0

%

0.0

%

 

The expected option life is based on historical trends and data. With regard to the expected option life
assumption, the Company considers the exercise behavior of past grants and models the pattern of aggregate
exercises. Patterns are determined on specific criteria of the aggregate pool of optionees including the reaction to vesting, realizable value and short-time-to-maturity effect. The Company uses an expected stock-price volatility assumption that is based on historical volatilities of the underlying stock which are obtained from public data sources. The risk-free interest rate is equal to the historical U.S. Treasury zero-coupon bond rate with a remaining term equal to the expecte  life of the option. The dividend yield of zero is based on the fact that the Company has never paid cash dividends and has no present intention to pay cash dividends. Based on the Company's historical voluntary turnover rates, an annualized estimated forfeiture rate of 10% has been used in calculating the estimated cost. Additional expense will be recorded if the actual forfeiture rate is lower than estimated, and a recovery of prior expense will be recorded if the actual forfeiture rate is higher than estimated.

The following table summarizes information about the Company's stock option plans for the nine months
ended June 30, 2011:

 

 

 

 

 

Weighted-

 

 

 

 

 

 

Weighted-

Average

 

 

 

Number of

 

 

Average

Remaining

 

Aggregate

 

Options

 

 

Exercise

Contractual

 

Intrinsic

 

Outstanding

 

 

Price

Term

 

Value $(000)

 

Outstanding, October 1, 2010

545,010

 

$

2.89

 

 

 

 

Granted

241,500

 

 

3.80

 

 

 

Canceled

(119,600

)

 

3.67

 

 

 

Exercised

(197,248

)

 

1.97

 

 

 

Outstanding, June 30, 2011

469,662

 

$

3.54

4.92

$

1,052

 

Vested or expected to vest, June 30, 2011

447,788

 

$

3.53

4.69

$

1,011

 

Exercisable, June 30, 2011

250,923

 

$

3.28

3.18

$

636

 

Restricted Stock Units

The Company periodically grants awards of restricted stock units ("RSU") to each of its non-employee
directors and some of its management team on a discretionary basis pursuant to its stock compensation plans.
Each RSU entitles the holder to receive, at the end of each vesting period, a specified number of shares of the
Company's common stock. The total number of RSUs unvested at June 30, 2011 was 183,177. Each RSU vests at
the rate of 33.33% on each of the first through third anniversaries of the grant date with final vesting of the most
recent grants scheduled to occur in June 2014. Included in the total number of RSUs unvested at June 30, 2011
are 143,500 RSUs which are subject to a further vesting condition that the Company's common stock must trade
at a price greater than $10 per share on a national securities exchange for a period of twenty consecutive days
prior to the fifth year anniversary of the grant date. For such RSUs, the Company performed fair value analysis
using the Monte Carlo option-pricing model. The fair value related to the RSUs was calculated based primarily on
the average stock price of the Company's common stock on the date of the grant and is being amortized evenly on
a pro-rata basis over the vesting period to general and administrative expense. The fair value of the RSUs granted
in the nine months ended June 30, 2011 and 2010, respectively, was approximately $662,000 (or $3.88 weighted-
average fair value per share) and $59,000 (or $2.39 weighted-average fair value per share). The Company
recorded compensation expense related to RSUs of approximately $43,000 and $13,000 for the three months
ended June 30, 2011 and 2010, respectively, and $72,000 and $39,000 for the nine months ended June 30, 2011
and 2010, respectively. These amounts are included in the total stock-based compensation expense disclosed
above. As of June 30, 2011, there was $778,000 of total unrecognized compensation cost related to RSUs, which
is expected to be recognized over a weighted average period of 2.73 years.

The following table presents RSU information for the nine months ended June 30, 2011:

 

Number of

 

 

RSUs

 

 

Outstanding

 

 

Outstanding, October 1, 2010

45,841

 

Granted

170,500

 

Canceled

(13,504

)

Vested

(19,660

)

Outstanding, June 30, 2011

183,177

 

 

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