Stockholders' Equity

12 Months Ended

Mar. 31, 2012

Stockholders' Equity [Abstract]

Stockholders' Equity

Note 9.                 Stockholders' Equity.

Stock Awards, and Options.

As of March 31, 2012, we had four equity compensation plans: the 2011 Equity Incentive Plan (2011 Plan), the 2010 Equity Incentive Award Plan (2010 Plan), the 2008 Stock Awards and Incentive Plan (2008 Plan) and the 2004 Incentive Compensation Plan (2004 Plan, and together with the 2011 Plan, the 2010 Plan and the 2008 Plan, the Plans).  The 2011 Plan provides for stock options, stock appreciation rights, stock awards, restricted stock awards and stock units, performance shares and performance units conditioned upon meeting performance criteria, and other stock or cash-based awards.  The 2010 Plan provides for stock options, stock appreciation rights, restricted stock awards and restricted stock units, dividend equivalents, stock payment awards and other stock or cash-based awards that may be payable upon attainment of pre-established performance goals.  The 2008 Plan provides for equity awards, including stock options, stock appreciation rights, restricted stock awards, performance awards, phantom stock awards, or stock units.  The 2004 Plan provides for equity awards, including stock options and restricted stock units.

At March 31, 2012, there were approximately 19,200,000 shares available for future grants under the 2011 Plan, nine shares available for future grants under the 2010 Plan, 622,500 shares available for future grants under the 2008 Plan and 845,930 shares available for future grants under the 2004 Plan.

Under the Plans, the maximum term allowed for an option is 10 years and a stock award shall either vest or be forfeited not more than 10 years from the date of grant.

During fiscal 2011, we granted 12,678,000 options under the 2010 Plan on November 19, 2010 at an exercise price of $0.20, which was $0.05 higher than the closing stock price of $0.15 on the date of grant.  The options are subject to performance conditions and either time-based vesting or market conditions.  As a result, we used a Monte Carlo simulation model (Monte Carlo) to determine the fair value of these stock options.  The Monte Carlo model required the input of subjective assumptions, including items such as the expected term of the options.  If factors change and we use different assumptions for estimating share-based compensation expense related to stock options, our share-based compensation expense may differ materially from that recorded in the current period.  The weighted-average grant-date fair value for options granted during the fiscal year ended March 31, 2011 was $0.09 per share.

On November 19, 2010, three types of options were granted (Types A, B and C) from the 2010 Plan.  Type A options have time based vesting as follows: 25% vests on January 8, 2011 and 6.25% vests each three-month period thereafter (vesting round up to nearest whole share).  Type A options will be 100% vested on January 8, 2014.  Type B options have market conditions as well as performance conditions as follows: 100% vested upon the earlier of (i) the date the stock's fair market value equals or exceeds $0.0733 for any 20 out of 30 consecutive trading days on or after January 8, 2012, (ii) a change in control in which Image's Common Stock's equity value equals or exceeds $0.0733 per share, or (iii) January 8, 2019.  Type C options have market conditions as well as performance conditions as follows: 100% vested upon the earlier of (i) the date Image's Common Stock's fair market value equals or exceeds $0.19 for any 20 out of 30 consecutive trading days on or after January 8, 2013 (ii) a change in control in which the stock's equity value equals or exceeds $0.19 per share, or (iii) January 8, 2019.

There were no options granted subsequent to the November 19, 2010 grant, through March 31, 2012.

Stock option activity under the Plans for the fiscal year ended March 31, 2012, and changes during the year then ended are presented below:

Options	Shares (000)			Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Term		Aggregate Intrinsic Value ($000)
Outstanding at March 31, 2011		13,037		$	0.252
Granted		-			-
Exercised		-			-
Forfeited or Expired		(80	)		1.791
Outstanding at March 31, 2012		12,957		$	0.237		8.574	$	-
Exercisable at March 31, 2012		5,103		$	0.294		8.468	$	-

The aggregate intrinsic value of our outstanding options represents the total pre-tax intrinsic value, based on our options with an exercise price less than Image's closing stock price of $0.075 as of March 31, 2012, which theoretically could have been received by the option holders had all option holders exercised their options as of that date.  There was no aggregate intrinsic value of options outstanding or exercisable as there were no in-the-money options exercisable as of March 31, 2012 and 2011.  There were no options exercised, and thus no aggregate intrinsic value of options exercised, during the fiscal year ended March 31, 2012 and 2011.  At March 31, 2012, there were approximately 20,668,000 shares of common stock available for new awards, including stock options, to our directors and employees.

As of March 31, 2012, there were 7,854,000 unvested stock options and $357,000 in remaining unamortized stock based compensation expense.

As there were no exercises of stock options, there was no excess tax benefit recorded for the tax deductions related to stock options during fiscal 2012 and 2011.

The following table summarizes significant ranges of outstanding and exercisable options at March 31, 2012:

		Options Outstanding						Options Exercisable
Range of Exercise Prices		Number of Shares at March 31, 2012 (In thousands)		Weighted-Average Remaining Contractual Life (Years)		Weighted- Average Exercise Price		Number of Shares at March 31, 2012 (In thousands)		Weighted- Average Exercise Price
Under $2.00			12,856		8.6	$	0.209		5,002	$	0.223
$	2.01 to $4.00		101		2.5		3.800		101		3.800
			12,957						5,103

During fiscal 2012, we granted 800,000 restricted stock awards under the 2011 Plan on December 6, 2011 to two independent directors.  The restricted shares were issued on the date of grant, but will not be transferrable until their restrictions are removed.  We measured the fair value of the restricted stock on the date of grant based on the closing market price of our common stock on that day, which was $0.05 per share.  We amortize this value to stock-based compensation expense over the vesting period, which is in equal installments quarterly over three years.  We have assumed that all of the restricted stock will ultimately vest, and therefore we have not incorporated a forfeiture rate for purposes of determining the stock-based compensation expense; however the restricted stock may be subject to forfeiture if the director terminates his or her service during the vesting period.

On November 19, 2010, an aggregate of 25,790,000 shares of restricted stock awards were granted under the 2010 Plan to five members of management.  The restricted shares were issued on the date of grant, but will not be transferable until their restrictions are removed.  The restrictions are similar to the vesting terms described above for the options granted on the same date, however, the restricted stock awards are subject to transfer restrictions equal to the percentage of stock sold by the JH Entities.  At March 31, 2012, this sales percentage was zero so none of these restricted stock awards are transferable.  Further, the stock awards are subject to forfeiture until certain vesting conditions are met.  We measured the fair value of the restricted stock on the date of grant based on the closing market price of our common stock, which was $0.15 per share, and to the extent vesting is contingent upon achieving a target market price we determined the stock's fair value using a Monte Carlo simulation model.  We amortize this value to stock-based compensation expense ratably over the award's explicit service period of 4.1 years.  To the extent the awards vest before 4.1 years, compensation expense will be accelerated based on actual vesting.

On September 17, 2010, an aggregate of 200,000 shares of restricted stock awards were granted under the 2008 Plan to two independent directors.  The restricted shares were issued on the date of grant, but will not be transferable until their restrictions are removed.  We measured the fair value of the restricted stock on the date of grant based on the closing market price of our common stock on that day, which was $0.23 per share. We amortize this value to stock-based compensation expense ratably over the vesting period.  We have assumed that all of the restricted stock will ultimately vest, and therefore we have not incorporated a forfeiture rate for purposes of determining the stock-based compensation expense; however the restricted stock may be subject to forfeiture if the director terminates his or her service during the vesting period.

Restricted stock award activity under the Plans for the fiscal year ended March 31, 2012, and changes during the year then ended are presented below:

Restricted Stock Awards	Shares (000)			Weighted-Average Exercise Price
Nonvested at March 31, 2011		25,956		$	0.151
Granted		800			0.050
Vested		(133	)		0.141
Forfeited		-			-
Nonvested at March 31, 2012		26,623		$	0.148

Compensation expense relating to these stock options and restricted stock awards for the fiscal years ended March 31, 2012 and 2011 was approximately $1,324,000 and $568,000, respectively.  Unrecognized stock-based compensation expense relating to these stock options and restricted stock awards of approximately $3,165,000 at March 31, 2012 is expected to be expensed ratably over the remaining grant-specific respective vesting and derived service periods through December 2014.

Stockholder Rights Plan.On October 31, 2005, we adopted a stockholder rights plan intended to protect the interests of the stockholders from coercive, abusive or unfair takeover tactics.

On January 8, 2010, in connection with the JH Partners transaction, this stockholder rights plan was terminated.

Preferred Stock.  In January 2010, Image issued 22,600 shares of Series B Cumulative Preferred Stock (or Series B Preferred) and 202,066.6 shares of Series C Junior Participating Preferred Stock (or Series C Preferred), which automatically converted into common stock in November 2010 upon shareholder approval of the increased authorized number of common stock.  After conversion of the outstanding Series C Preferred, no further shares of Series C Preferred remain outstanding.  

The Series B Preferred bears a cumulative dividend equal to 12% per annum of the liquidation preference of $1,000 per share (subject to adjustment upon any stock dividend, stock split, combination or other similar recapitalization with respect to the Series B Preferred) compounding quarterly.  Dividends accrue automatically on a daily basis whether or not declared by our board of directors, but are payable in cash only when, and if, declared by the board.  If not declared and paid earlier, such dividends are payable upon liquidation.  So long as any shares of Series B Preferred are outstanding and until all dividends on the Series B Preferred have been paid or declared and set aside for payment, we will be prohibited from (i) declaring or paying any dividend (whether in cash or property) on any shares of our preferred stock or Common Stock, and (ii) subject to certain exceptions, redeeming any shares of our preferred stock or Common Stock.  The Series B Preferred also has liquidation preference with priority over liquidating distributions to holders of Common Stock or any capital stock that ranks junior to the Series B Preferred equal to the sum of (i) $1,000 per share (subject to adjustment upon any stock dividend, stock split, combination or other similar recapitalization with respect to the Series B Preferred) (or Liquidation Preference) and (ii) an amount equal to all accrued but unpaid dividends thereon.  The Series B Preferred has an aggregate Liquidation Preference at March 31, 2012 and 2011 of $29.4 million and $26.1 million, respectively.  In the event of any merger of Image with or into another person or of any person with or into Image, any sale, transfer, lease or conveyance to another person of all or substantially all of our property or any statutory share exchange of Image with another person, each share of Series B Preferred will be entitled to receive an amount in cash equal to the sum of (y) the Liquidation Preference and (z) the amount per share equal to accrued but unpaid dividends.  Certain internal reorganization transactions will not trigger the foregoing payment right.  Holders of Series B Preferred do not have any voting rights, including the right to elect directors, other than those rights required by law but do have limited voting rights with respect to matters affecting the rights and privileges of the Series B Preferred.  The Series B Preferred is not redeemable by us or its holders and is not convertible.

Image employed an option pricing model to determine the relative fair value of the Series B Preferred, Series C Preferred and the Purchase Rights (see Note 7 above).  The Series B Preferred and Series C Preferred, prior to conversion, were classified as mezzanine equity.  The Series B Preferred is classified as mezzanine equity due to the clause in the Certificate of Designation, which provides upon a merger or other reorganization events, as defined, the Series B Preferred is cash settled.  This redemption event would likely be outside of Image's control.  The Series C Preferred was classified as mezzanine equity, prior to conversion, due to certain obligations under a related registration rights agreement (or RRA), which would not be in Image's control.  The costs associated with the preferred stock transaction reimbursed to the Investors reduced the proceeds received by Image and affected the calculation of the fair value of Series C Preferred.  The calculated affect was recorded as a deemed dividend on Series C Preferred.