Note 4 - Stock-Based Compensation

9 Months Ended

Oct. 31, 2012

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

4.            Stock-Based Compensation

We grant stock awards for a fixed number of shares to employees, consultants, and directors pursuant to the Company’s shareholder-approved equity incentive plans.

We account 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 applicable accounting rules, we review our valuation assumptions at each grant date and, as a result, the valuation assumptions used to value stock-based awards granted in future periods are subject to possible change. 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 changes in vesting and forfeitures, and future changes in estimates, may differ from our current estimates.

The stock-based compensation expense recognized during the three and nine months ended October 31, 2012 and 2011 is summarized in the table below (in thousands except per share amounts):

	Three Months Ended October 31,				Nine Months Ended October 31,
	2012		2011		2012		2011
Total stock-based compensation expense	$	39	$	26	$	115	$	121
Impact on basic and diluted earnings per share	$	0.00	$	0.00	$	0.01	$	0.02

The total compensation cost related to nonvested awards not yet recognized is approximately $159,000, which will be expensed over a weighted average remaining life of 7.0 months.

During the three months ended October 31, 2012, 465,000 stock options were granted and no restricted stock units were granted. During the three months ended October 31, 2011 no stock options or restricted stock units were granted. During the nine months ended October 31, 2012, 300,000 restricted stock units were granted and 465,000 stock options were granted.  During the nine months ended October 31, 2011, 295,000 restricted stock units were granted and no stock options were granted. The fair value of the restricted stock units granted during the nine months ended October 31, 2012 was estimated using the stock price on the date of the grant of $0.16 and a forfeiture rate of 10.6 percent. The fair value of the restricted stock units granted during the nine months ended October 31, 2011 was estimated using the weighted-average stock price on the date of the grants of $0.33 and a weighted-average forfeiture rate of 9.3 percent.

The fair value of the 465,000 options granted under our stock option plans during the first three quarters of fiscal 2013 was estimated on the date of grant using the following weighted average assumptions:

	Year-to-date
	October 31, 2012
Weighted average risk-free interest rate		0.7	%
Expected life (in years)		5.5
Expected stock volatility		121	%
Dividend yield	None
Expected forfeitures		8.2	%

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 provide that officers, key employees, directors and consultants may be granted options to purchase up to 2,675,000 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.

The Company’s former employee stock option plan (the “Prior Employee Plan”) expired during May 2005. As a result, no new options could be granted under the plan thereafter. This plan provided for the issuance of up to 825,000 shares of common stock. 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 the 2011 and 2005 Plans, 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 or upon achievement of performance objectives determined by the compensation committee of the Company’s Board of Directors at the time equity awards are granted; however, under the 2005 Plan no option may be exercised prior to one year following the grant of the option. Options granted under the Prior Employee Plan expire as determined by the committee at the time of grant, but no later than ten years and one week after the date of grant (five years for 10 percent shareholders). Options granted under the 2011 and 2005 Plans expire as determined by the committee at the time of grant, 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 nine months ended October 31, 2012 are summarized below:

	Outstanding Options
	Number of Shares			Weighted-Average  Exercise Price
Balance, January 31, 2012		380,000		$	3.93
Options granted		465,000			0.40
Options canceled or expired		(80,500	)		7.90
Options exercised		—			—
Balance, October 31, 2012		764,500		$	1.48
Stock Options Exercisable at October 31, 2012		179,325		$	4.53

Transactions and other information related to restricted stock units (“RSU’s”) granted under these plans for the nine months ended October 31, 2012 are summarized below:

	Outstanding Restricted Stock Units
	Number of Shares			Weighted-Average  Stock Price  On Grant Date
Balance, January 31, 2012		293,651		$	0.37
RSU’s granted		300,000			0.16
RSU’s canceled or expired		(32,565	)		0.26
Common stock issued		(226,760	)		0.31
Balance, October 31, 2012		334,326		$	0.20

The RSU’s canceled or expired in the table above represent the difference between the number of shares awarded and the number issued because the recipient elected a net award to cover personal income taxes.

As of October 31, 2012, the stock awards outstanding have an aggregate intrinsic value of $29,000, based on a closing market price of $0.25 per share of our common stock on October 31, 2012. The following table summarizes information about the Company’s stock awards outstanding at October 31, 2012:

				Awards Outstanding						Awards Exercisable
Range of Exercise/Grant Prices				Number Outstanding		Weighted-Avg. Remaining Contractual Life (years)		Weighted-Avg. Exercise/Grant Price		Number Exercisable		Weighted-Avg. Exercise/Grant Price
$	0.16	to	1.09		1,013,500		5.90	$	0.47		98,325	$	1.10
	2.89	to	4.90		19,326		4.34		4.45		15,000		4.90
	8.08	to	10.43		66,000		2.71		9.56		66,000		9.56
					1,098,826		5.68		1.09		179,325		4.53

At October 31, 2012, shares available for future grants were 455,224.