Note 2. Common Stock, Common Stock Options and Warrants

 

The Company is authorized to issue up to 75,000,000 shares of common stock with a stated par value of $0.001.

 

The Company may issue stock options and other types of equity-based compensation under its 2006 Omnibus Equity Incentive Plan (the “2006 Plan”) which was implemented on May 31, 2006 and its 2011 Omnibus Equity Incentive Plan which was implemented on May 4, 2011. These are the only plans under which the Company may issue additional equity-based compensation. The Company also has outstanding stock options that were issued under its 2001 Omnibus Equity Incentive Plan (the “2001 Plan”) and which were issued under employment agreements with executive officers.

 

During the three and nine months ended September 30, 2011, the Company granted options to purchase a total of 4,000 and 44,000 shares of common stock to five and fifteen employees pursuant to the 2006 Plan. During the three and nine months ended September 30, 2011, 100,500 and 188,563 options issued under the 2006 Plan were forfeited, 0 and 20,875 options issued under the 2001 Plan were forfeited and no options issued under employment agreements outside the 2006 Plan and the 2001 Plan were forfeited. No options were exercised during the three and nine months ended September 30, 2011. The following table shows stock option activity during the nine month period ended September 30, 2011:

 

During the three and nine month period ended September 30, 2011, 0 and 21,550 warrants expired and no warrants were granted by the Company or exercised by warrant holders.

 

At September 30, 2011, the Company had 3,117,091 outstanding stock options, 6,287,045 shares issuable upon exercise of warrants to be issued upon exchange of Preferred Stock, and 658,018 shares issuable upon the exercise of outstanding warrants that were not included in the computation of diluted EPS because to do so would have been anti-dilutive for the periods presented.

 

The Company accounts for its stock-based compensation by recognizing compensation costs relating to share-based compensation awards, including grants of employee stock options as these awards become vested based on the grant date fair value of the equity instruments issued.

 

The Company estimated the grant date fair value of each option granted during the periods set forth below using the Black-Scholes option pricing model with the following weighted average assumptions:

 

 

The risk-free interest rate is determined on the date the grant is issued. This rate is equal to the rates based on yields from U.S. Treasury zero-coupon issues with maturity of 3.5 years to 6.5 years. Expected volatilities are based upon looking back at historical stock prices of the Company since the date of adoption of the plan.

The Company estimates forfeitures of stock options. The forfeiture rate is the rate at which options are expected to be forfeited prior to full vesting. The forfeiture rate is determined based on actual forfeiture rate experience as follows: For each historical year of option issuance, the total options issued for the year is compared to the options forfeited prior to having vested. For option years in which the two year vesting period has not passed, past experience is used to project future forfeitures. The total of pro forma forfeitures is then compared to total options awarded and the resultant percentage is used as the forfeiture rate. This rate is recalculated on an annual basis.

 

The annual rate of quarterly dividends is 0% since iSECUREtrac has historically not paid dividends on its common stock and currently does not expect to pay dividends on its common stock.

 

The Company recorded compensation expense of $70,041 and $222,403 for the three and nine months ended September 30, 2011, respectively, compared to $32,079 and $111,521 for the same periods in 2010 related to employee stock-based compensation awards.

 

As of September 30, 2011, there was approximately $214,084 of total unrecognized compensation costs related to non-vested stock option agreements granted to the Company’s executives and employees. The future compensation expense the Company will recognize if and as these options vest according to their contractual terms is as follows: