SoftBrands (SBN)

Accounting for Stock Issued to Employees (“APB 25”), and its related interpretations. Under the provisions of APB 25, no compensation expense was recognized when stock options were granted with exercise prices equal to or greater than market value on the date of grant. Under the modified prospective method of transition that we adopted, compensation expense is recognized beginning with the effective date of adoption for all share-based payments (i) granted after the effective date of adoption and (ii) granted prior to the effective date of adoption and that remain unvested on the date of adoption. Under the modified prospective method of transition, we are not required to restate our prior period financial statements to reflect expensing of share-based compensation under SFAS No. 123R. Therefore the three and six month results of March 31, 2006 are not directly comparable to the same period in the prior year. Under SFAS No. 123R, we use the Black-Scholes pricing model to estimate the fair value of the share-based compensation as of the grant date. The Black-Scholes model by its design is highly complex, and dependent upon key data inputs estimated by management. The primary data input with the greatest degree of subjective judgment are the estimated lives of the share-based awards and the estimated volatility of our stock price. The Black-Scholes model is highly sensitive to changes in these two data inputs. Beginning in the fourth quarter of fiscal 2005, we calculated the 5-year estimated life of stock options granted using the information and guidance from an analysis by an independent compensation consultant. We based our estimate of expected volatility for fiscal year 2006 on daily historical trading data of our common stock. For fiscal year 2005, we based our volatility estimate under the same method as fiscal year 2006. We selected the historical method primarily because we have not identified a more reliable or appropriate method to predict future volatility. See Note 2, Accounting for Share-based Compensation, to our financial statements for more information about the adoption of SFAS No. 123(R).

 

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Accounting for Stock Issued to Employees (“APB 25”), and its related interpretations. Under the provision of APB 25, no compensation expense was recognized when stock options were granted with exercise prices equal to or greater than market value on the date of grant.  Under the modified prospective method of transition that we adopted, compensation expense is recognized beginning with the effective date of adoption for all stock-based payments (i) granted after the effective date of adoption and (ii) granted prior to the effective date of adoption and that remain unvested on the date of adoption. Under the modified prospective method of transition, we are not required to restate our prior period financial statements to reflect expensing of stock-based compensation under SFAS No. 123R. Therefore the three-month results of December 31, 2005 are not directly comparable to the same period in the prior year.  Under SFAS No. 123R, we use the Black Scholes pricing model to estimate the fair value of the stock-based compensation as of the grant date. The Black-Scholes model by its design is highly complex, and dependent upon key data inputs estimated by management. The primary data input with the greatest degree of subjective judgment are the estimated lives of the stock-based awards and the estimated volatility of our stock price. The Black-Scholes model is highly sensitive to changes in these two data inputs. Beginning in the fourth quarter of fiscal 2005, we changed the estimated life of stock options granted from 10 years to 5 years based on a study of comparable companies and to reflect anticipated increased marketability and trading volume of our common stock.  We based our estimate of expected volatility for fiscal year 2006 on daily historical trading data of our common stock. For fiscal year 2005, we based our volatility estimate under the same method as fiscal year 2006. We selected the historical method primarily because we have not identified a more reliable or appropriate method to predict future volatility. See Note 2, Accounting for Stock-Based Compensation, to our financial statements for more information about the adoption of SFAS No. 123(R).

 

Accounting for Stock Issued to Employees.  The revised statement addresses the accounting for share-based payment transactions with employees and other third parties, eliminates the ability to account for share-based payment transactions using APB Opinion No. 25 and requires that the compensation costs relating to such transactions be recognized in the consolidated statement of operations based on the grant-date fair value of those instruments. The revised statement is effective for the Company on October 1, 2005.  The Company will use the modified prospective method of adoption.  The newly issued statement will have a material impact on results of operations and financial position.  See the “Stock-Based Compensation” discussion above, which includes the pro forma impact of recognizing stock-based compensation under SFAS No. 123, on the Company’s net loss and loss per common share for the years ended September 30, 2005 and 2005 and the nine-month period ended September 30, 2003.  Options granted to employees under the 2001 Stock Incentive Plan (the only form of award granted) now vest over a three- to four-year term from the date of grant. Vesting of outstanding options was accelerated in accordance with the terms of each option agreement on March 15, 2005, when the Company’s registration under Section 12(g) of the Securities Exchange Act of 1934 became effective.  As a result, the pro forma stock-based compensation expense for the year ended September 30, 2005 includes an additional $1.0 million taken in the quarter ended March 31, 2005, to record the effect of the acceleration provisions.

 

In December 2004, the FASB issued SFAS No. 153,

Accounting for Stock Issued to Employees.  The revised statement addresses the accounting for share-based payment transactions with employees and other third parties, eliminates the ability to account for share-based payment transactions using APB Opinion No. 25 and requires that the compensation costs relating to such transactions be recognized in the consolidated statement of operations based on the grant-date fair value of those instruments. The revised statement is effective as of the first interim period beginning after June 15, 2005.  We are currently determining what impact the newly issued statement will have on our results of operations and financial position.  See the “Stock-Based Compensation” discussion in Note 3 to the Consolidated Financial Statements, which includes the pro forma impact of recognizing stock-based compensation under SFAS No. 123, on our net loss and loss per common share for the quarters ended December 31, 2004 and 2003.

 

Accounting for Stock Issued to Employees.  The revised statement addresses the accounting for share-based payment transactions with employees and other third parties, eliminates the ability to account for share-based payment transactions using APB Opinion No. 25, and requires that the compensation costs relating to such transactions be recognized in the consolidated statement of operations based on the grant-date fair value of those instruments.  The revised statement is effective for us on October 1, 2005.  We are currently determining what impact the newly issued statement will have on our results of operations and financial position.  See the “Stock-Based Compensation” discussion in Note 3 to the Consolidated Financial Statements, which includes the pro forma impact of recognizing stock-based compensation under SFAS No. 123, on our net loss and loss per common share for the three and nine months ended June 30, 2005 and 2004.

 

Accounting for Stock Issued to Employees.  The revised statement addresses the accounting for share-based payment transactions with employees and other third parties, eliminates the ability to account for share-based payment transactions using APB Opinion No. 25 and requires that the compensation costs relating to such transactions be recognized in the consolidated statement of operations based on the grant-date fair value of those instruments. The revised statement is effective for us on October 1, 2005.  We are currently determining what impact the newly issued statement will have on our results of operations and financial position.  See the “Stock-Based Compensation” discussion in Note 3 to the Consolidated Financial Statements, which includes the pro forma impact of recognizing stock-based compensation under SFAS No. 123, on our net loss and loss per common share for

 

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Accounting for Stock Issued to Employees.  The revised statement addresses the accounting for share-based payment transactions with employees and other third parties, eliminates the ability to account for share-based payment transactions using APB Opinion No. 25, and requires that the compensation costs relating to such transactions be recognized in the consolidated statement of operations based on the grant-date fair value of those instruments.  The revised statement is effective for us on October 1, 2005.  We are currently determining what impact the newly issued statement will have on our results of operations and financial position.  See the “Stock-Based Compensation” discussion in Note 3 to the Consolidated Financial Statements, which includes the pro forma impact of recognizing stock-based compensation under SFAS No. 123, on our net loss and loss per common share for the three and nine months ended June 30, 2005 and 2004.

 

Accounting for Stock Issued to Employees.  The revised statement addresses the accounting for share-based payment transactions with employees and other third parties, eliminates the ability to account for share-based payment transactions using APB Opinion No. 25 and requires that the compensation costs relating to such transactions be recognized in the consolidated statement of operations based on the grant-date fair value of those instruments. The revised statement is effective for us on October 1, 2005.  We are currently determining what impact the newly issued statement will have on our results of operations and financial position.  See the “Stock-Based Compensation” discussion in Note 3 to the Consolidated Financial Statements, which includes the pro forma impact of recognizing stock-based compensation under SFAS No. 123, on our net loss and loss per common share for

 

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Accounting for Stock Issued to Employees.  The revised statement addresses the accounting for share-based payment transactions with employees and other third parties, eliminates the ability to account for share-based payment transactions using APB Opinion No. 25 and requires that the compensation costs relating to such transactions be recognized in the consolidated statement of operations based on the grant-date fair value of those instruments. The revised statement is effective as of the first interim period beginning after June 15, 2005.  We are currently determining what impact the newly issued statement will have on our results of operations and financial position.  See the “Stock-Based Compensation” discussion in Note 3 to the Consolidated Financial Statements, which includes the pro forma impact of recognizing stock-based compensation under SFAS No. 123, on our net loss and loss per common share for the quarters ended December 31, 2004 and 2003.

 

Accounting for Stock Issued to Employees.  The revised statement addresses the accounting for share-based payment transactions with employees and other third parties, eliminates the ability to account for share-based payment transactions using APB Opinion No. 25 and requires that the compensation costs relating to such transactions be recognized in the consolidated statement of operations based on the grant-date fair value of those instruments. The revised statement is effective as of the first interim period beginning after June 15, 2005.  We are currently determining what impact the newly issued statement will have on our results of operations and financial position.  See the “Stock-Based Compensation” discussion in Note 3 to the Consolidated Financial Statements, which includes the pro forma impact of recognizing stock-based compensation under SFAS No. 123, on our net loss and loss per common share for the quarters ended December 31, 2004 and 2003.