This excerpt taken from the RFMI 10-K filed Nov 29, 2007.
We adopted SFAS 123(Revised 2004), Share-Based Payment, or SFAS 123(R), for our fiscal year beginning September 1, 2005 using the modified prospective method. In compliance with the standard, we recorded stock-based compensation expense in fiscal years 2007 and 2006 related to options for employees and directors and for our Employee Stock Purchase Plan, or ESPP. The fair value of stock options granted and favorable pricing of our stock offered under the ESPP is determined using the Black-Scholes model. Prior to the fiscal year 2006, we accounted for our option plans and ESPP under APB 25 and, accordingly, did not recognize compensation expense for options granted to employees and directors or for our ESPP. Compensation expense for consultant options has been recorded in the current and prior years and is recognized over the vesting life of the options, which is aligned with the consulting service life.
In the second quarter of fiscal year 2006, we changed from granting stock options as the primary means of stock compensation to granting restricted stock units, or RSUs. The fair value of any RSU grant is based on the market value of our shares included in the RSU on the date of grant and is recognized as compensation expense over the vesting period.
This excerpt taken from the RFMI 8-K filed Nov 15, 2006.
At December 31, 2005 and 2004, the Company has a stock-based employee compensation plan. The Company applies the recognition and measurement principles of Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB 25), and related interpretations in accounting for options issued to its employees rather than Statement of Financial Accounting Standards Board Statement No. 123, Accounting for Stock-Based Compensation (SFAS 123). In accordance with APB 25, since the exercise price of the options issued equaled the fair market value of the Companys stock on the date of grant, no compensation expense was reflected in the Companys statements of income (loss). In December 2005, the FASB issued FASB Statement No. 123R, Share Based Payment, which replaces APB No. 25 and SFAS No. 123. The change is effective for nonpublic entities as of the beginning of the first annual reporting period that begins after December 15, 2005. SFAS No. 123R requires companies to recognize in financial statements the cost of employee services received in exchange for awards of equity instruments based on the grant-date fair value of those awards.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2005 AND 2004
NOTE A SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Stock-Based Compensation (Continued)
Financial Accounting Standards Board Statement No. 148, Accounting for Stock-Based Compensation Transition and Disclosure (SFAS 148), requires the Company to provide pro forma information regarding net income (loss) as if compensation cost had been determined in accordance with the fair value-based method prescribed in SFAS 123.
The Company estimates the fair value of each stock option at the grant date by using the Black-Scholes option-pricing model with the following weighted average assumptions for 2005 and 2004: risk free interest rate of 4%; expected life of five years; no dividend yield and no volatility.