NOTE 11: SHARE-BASED COMPENSATION

9 Months Ended

Sep. 30, 2011

Disclosure of Compensation Related Costs, Share-based Payments [Text Block]

NOTE 11: SHARE-BASED COMPENSATION

We have a share-based compensation plan, the “2003 Directors, Officers and Consultants Stock Option, Stock Warrant and Stock Award Plan” (the “Plan”). Share-based compensation, and the corresponding income tax benefit related to the expense, is recognized as provided under the applicable authoritative guidance which requires all share-based payments to employees, including grants of employee stock options, to be recognized as compensation expense over the requisite vesting periods based on their fair values. The impact of forfeitures that may occur prior to vesting is also estimated and considered in the amount recognized. In addition, the realization of tax benefits in excess of amounts recognized for financial reporting purposes will be recognized as a financing activity. The options granted under the Plan have vesting periods that range from immediate vesting to vesting over five years, and the contract terms of the options granted are up to ten years. We expense all stock options on a straight-line basis, net of estimated forfeitures, over the requisite vesting periods.  Under the Plan, the total number of options permitted is 15 percent of issued and outstanding common shares. Based on the shares of common stock outstanding at September 30, 2011, there were approximately 13 options available for grant under the Plan as of that date.

Summary of Shares of Non-Vested Stock (also commonly referred to as restricted stock)

During the nine months ended September 30, 2011, we granted 8,000 shares of non-vested stock to management and certain key employees, par value $0.001 per share.  These non-vested shares were granted on June 8, 2011, and had a fair value grant price of $0.09 per share based on the closing price of Deep Down’s common stock on that day.

The vesting of these current year granted shares of non-vested stock is based upon two conditions. The first condition is performance-based, as the Company must achieve certain earnings before interest, taxes, depreciation and amortization (“EBITDA”) targets in order for these granted shares to vest. The second condition is service-based. The restrictions on these shares of non-vested stock will lapse in one-third increments on each anniversary of the grant date, subject to achievement of both the performance-based and service-based conditions.

Management has determined that a 50 percent estimated forfeiture rate is appropriate for the service-based condition of this current year grant of non-vested stock. Management has also determined that it is probable that the first EBITDA target will be achieved by the Company. The share-based compensation associated with this current year grant of non-vested stock is $120, after a 50 percent reduction for estimated forfeitures. Based on management’s assumptions, a total of $40 of share-based compensation related to this current year grant of non-vested stock has been amortized in the nine months ended September 30, 2011.

We are amortizing the share-based compensation expense of all other prior year grants of non-vested stock using a 0 percent estimated forfeiture rate.  A total of $43 of share-based compensation related to all other previous grants has been amortized in nine months ended September 30, 2011.

During the nine months ended September 30, 2011, 1,000 shares of non-vested stock, previously granted to an executive in May 2010, par value $0.001 per share, were forfeited due to the resignation of the executive.

For the nine months ended September 30, 2011 and 2010, we recognized a total of $83 and $162, respectively, of share-based compensation expense related to all outstanding shares of non-vested stock, which is included in Selling, general and administrative expenses on the accompanying Condensed Consolidated Statements of Operations.  The unamortized portion of the estimated fair value of non-vested stock was $729 at September 30, 2011.