Stock-Based Compensation

6 Months Ended

Jul. 31, 2011

Stock-Based Compensation [Abstract]

Stock-Based Compensation

4. Stock-Based Compensation

          The Company grants stock awards for a fixed number of shares to employees, consultants, and directors with an exercise price equal to the fair value of the shares at the date of grant.

          The Company accounts for stock-based compensation using the modified prospective method, which requires measurement of compensation cost for all stock awards at fair value on date of grant and recognition of compensation over the service period for awards expected to vest. The fair value of stock options is determined using a Lattice Binomial model for options with performance-based vesting tied to the Company’s stock price and the Black-Scholes valuation model for options with ratable term vesting. Both the Lattice Binomial and Black-Scholes valuation models require the input of subjective assumptions. These assumptions include estimating the length of time optionees will retain their vested stock options before exercising them (the “expected term”), the estimated volatility of our common stock price over the expected term, and the number of awards that will ultimately not complete their vesting requirements (“forfeitures”). Changes in these subjective assumptions can materially affect the estimate of fair value of stock-based compensation and, consequently, the related amount recognized as an expense on the consolidated statements of operations. As required under the accounting rules, the Company reviews its valuation assumptions at each grant date and, as a result, is likely to change its valuation assumptions used to value stock-based awards granted in future periods. The values derived from using either the Lattice Binomial or the Black-Scholes model are recognized as an expense over the vesting period, net of estimated forfeitures. The estimation of stock awards that will ultimately vest requires significant judgment. Actual results, and future changes in estimates, may differ from the Company’s current estimates.

          The compensation expense recognized is summarized in the table below (in thousands except per share amounts):

	Three Months Ended				Six Months Ended
	July 31,				July 31,
	2011		2010		2011		2010
Total stock-based compensation expense	$	24	$	88	$	95	$	143
Impact on basic and diluted earnings per share	$	0.00	$	0.01	$	0.01	$	0.02

          The total compensation cost related to nonvested awards not yet recognized is approximately $315,000, which will be expensed over a weighted average remaining life of 18 months.

          During the three and six months ended July 31, 2011, 220,000 and 295,000 restricted stock units were granted. During the three and six months ended July 31, 2011, no stock options were granted. During the three months ended July 31, 2010, 80,000 restricted stock units were granted and 10,000 stock options were granted. No restricted stock units or stock options were granted in the first quarter of fiscal 2010. The fair value of the restricted stock units granted during the three months ended July 31, 2010 was estimated using the stock price on the date of the grant of $2.35 and a forfeiture rate of 8.2 percent. The fair value of the 10,000 options granted under the Company’s stock option plans during the three months ended July 31, 2010 was estimated on the date of grant using the Black-Scholes option-pricing model utilizing the following weighted average assumptions:

Weighted average risk-free interest rate		0.98	%
Expected life (in years)		3.2
Expected stock volatility		62.2	%
Dividend yield	None
Expected forfeitures		10.6	%

          Comarco has stock-based compensation plans under which outside directors, consultants, and employees are eligible to receive stock options and other equity-based awards. The stock option plans and a director stock option plan provide that officers, key employees, directors and consultants may be granted options to purchase up to 3,312,500 shares of common stock of the Company at not less than 100 percent of the fair market value at the date of grant, unless the grantee is a 10 percent shareholder of the Company, in which case the price must not be less than 110 percent of the fair market value. Figures for these plans reflect a 3-for-2 stock split declared during the year ended January 31, 2001.

          The Company’s Director Stock Option Plan (the “Director Plan”) expired in December 2010, and the Company’s former employee stock option plan (the “Employee Plan”) expired during May 2005. These plans provided for 637,500 and 825,000 shares issuable, respectively. During December 2005, the Board of Directors approved and adopted the Company’s 2005 Equity Incentive Plan (the “2005 Plan”) covering 450,000 shares of common stock. The 2005 Plan was approved by the Company’s shareholders at its annual shareholders’ meeting in June 2006, and subsequently amended at its annual shareholders meeting in June 2008 to increase the number of shares issuable under the plan from 450,000 to 1,100,000 shares. In July 2011, the Company’s shareholders approved the 2011 Equity Incentive Plan (the “2011” Plan) covering 750,000 shares of common stock.

          Under both the 2011 and 2005 Plan, the Company may grant stock options, stock appreciation rights, restricted stock, restricted stock units, and performance based awards to employees, consultants and directors. Under all plans, awards vest or become exercisable in installments determined by the compensation committee of the Company’s Board of Directors; however, under the 2005 Plan no option may be exercised prior to one year following the grant of the option. The options granted under the Director Plan and the Employee Plan expire as determined by the committee, but no later than ten years and one week after the date of grant (five years for 10 percent shareholders). The options granted under the 2011 and 2005 Plan expire as determined by the committee, but no later than ten years after the date of grant (five years for 10 percent shareholders).

          Transactions and other information related to stock options granted under these plans for the six months ended July 31, 2011 are summarized below:

	Outstanding Options
				Weighted-Average
	Number of Shares			Exercise Price
Balance, January 31, 2011		1,022,500		$	2.81
Options granted		—			—
Options canceled or expired		(407,500	)		1.85
Options exercised		—			—
Balance, July 31, 2011		615,000		$	3.46
Stock Options Exercisable at July 31, 2011		322,050		$	5.63

          Transactions and other information related to restricted stock units (“RSU’s”) granted under these plans for the six months ended July 31, 2011 are summarized below:

	Outstanding Restricted Stock Units
				Weighted-Average
				Stock Price
	Number of Shares			On Grant Date
Balance, January 31, 2011		98,928		$	2.56
RSU’s granted		295,000			0.30
RSU’s canceled or expired		(45,952	)		2.65
Common Stock Issued		—			—
Balance, July 31, 2011		347,976		$	0.61

          As of July 31, 2011 40,000 restricted stock units had vested. The shares were issued to the recipients in August 2011.

          As of July 31, 2011, the stock awards outstanding have an intrinsic value of $1,000, based on a closing market price of $0.27 per share on July 31, 2011. The following table summarizes information about the Company’s stock awards outstanding at July 31, 2011:

	Awards Outstanding			Awards Exercisable
		Weighted-Avg.	Weighted-Avg.		Weighted-Avg.
Range of	Number	Remaining	Exercise/Grant	Number	Exercise/Grant
Exercise/Grant Prices	Outstanding	Contractual Life	Price	Exercisable	Price
$0.26 to 4.90	781,476	4.03	$0.96	180,550	$1.69
6.29 to 9.89	121,500	2.82	7.89	121,500	7.89
10.43 to 11.60	60,000	3.77	10.72	60,000	10.72
	962,976	3.86 years	2.45	362,050	5.27

          At July 31, 2011, shares available for future grants were 995,224.