NETSOL Technologies, Inc. Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

Note 15 - Stock Based Compensation

Note 15 - Stock Based Compensation

12 Months Ended

Jun. 30, 2014

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

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

NOTE 15 – STOCK BASED COMPENSATION

The Company maintains several Incentive and Non-Statutory Stock Option Plans (“Plans”) for its employees and consultants. Options granted under these Plans to an employee of the Company become exercisable over a period of no longer than ten (10) years and no less than twenty percent (20%) of the shares are exercisable annually. Options are not exercisable, in whole or in part, prior to one (1) year from the date of grant unless the board of directors specifically determines otherwise, as provided.

Two types of options may be granted under these Plans: (1) Incentive Stock Options (also known as Qualified Stock Options) which may only be issued to employees of the Company and whereby the exercise price of the option is not less than the fair market value of the common stock on the date it was reserved for issuance under the Plan; and (2) Non-statutory Stock Options which may be issued to either employees or consultants of the Company and whereby the exercise price of the option is less than the fair market value of the common stock on the date it was reserved for issuance under the plan. Grants of options may be made to employees and consultants without regard to any performance measures. All options issued pursuant to the Plan are nontransferable and subject to forfeiture.

In July 2013, the shareholders approved the 2013 Equity Incentive Plan (the “2013 Plan”) which provides for the grant of equity-based awards, including options, stock appreciation rights, restricted stock awards or performance share awards or any other right or interest relating to shares or cash, to eligible participants. The aggregate number of shares reserved and available for award under the 2013 Plan was 1,250,000. The 2013 Plan contemplates the issuance of common stock upon exercise of options or other awards granted to eligible persons under the 2013 Plan. Shares issued under the 2013 Plan may be both authorized and unissued shares or previously issued shares acquired by the Company. Upon termination or expiration of an unexercised option, stock appreciation right or other stock-based award under the 2013 Plan, in whole or in part, the number of shares of common stock subject to such award again becomes available for grant under the 2013 Plan. Any shares of restricted stock forfeited as described below will become available for grant. The maximum number of shares that may be granted to any one participant in any calendar year may not exceed 50,000 shares. All options issued pursuant to the Plan are nontransferable and subject to forfeiture.

Options granted under the 2013 Plan are not generally transferable and must be exercised within 10 years, subject to earlier termination upon termination of the option holder's employment, but in no event later than the expiration of the option's term. The exercise price of each option may not be less than the fair market value of a share of the Company’s common stock on the date of grant (except in connection with the assumption or substitution for another option in a manner qualifying under Section 424(a) of the Internal Revenue Code of 1986, as amended. Incentive stock options granted to any participant who owns 10% or more of the Company’s outstanding common stock (a “Ten Percent Shareholder”) must have an exercise price equal to or exceeding 110% of the fair market value of a share of our common stock on the date of the grant and must not be exercisable for longer than five years. Options become vested and exercisable at such times or upon such events and subject to such terms, conditions, performance criteria or restrictions as specified by the Committee. The maximum term of any option granted under the 2013 Plan is ten years, provided that an incentive stock option granted to a Ten Percent Shareholder must have a term not exceeding five years.

Under the 2013 Plan, a participant may also be awarded a "performance award," which means that the participant may receive cash, stock or other awards contingent upon achieving performance goals established by the Committee. The Committee may also make "deferred share" awards, which entitle the participant to receive the Company’s stock in the future for services performed between the date of the award and the date the participant may receive the stock. The vesting of deferred share awards may be based on performance criteria and/or continued service with the Company. A participant who is granted a "stock appreciation right" under the Plan has the right to receive all or a percentage of the fair market value of a share of stock on the date of exercise of the stock appreciation right minus the grant price of the stock appreciation right determined by the Committee (but in no event less than the fair market value of the stock on the date of grant). Finally, the Committee may make "restricted stock" awards under the 2013 Plan, which are subject to such terms and conditions as the Committee determines and as are set forth in the award agreement related to the restricted stock. As of June 30, 2014, no shares were issued under this plan to non- officers employees.

A summary of option and warrant activity for the years ended June 30, 2014 and 2013 is presented below:

OPTIONS:

	# of shares			Weighted Ave Exericse Price		Weighted Average Remaining Contractual Life (in years)		Aggregated Intrinsic Value

Outstanding and exercisable, June 30, 2012		803,433		$	19.73		3.69	$	-
Granted		362,747		$	5.51
Exercised		(449,285	)	$	5.70
Expired / Cancelled		(405,433	)	$	25.87
Outstanding and exercisable, June 30, 2013		311,462		$	15.65		3.3	$	523,125
Granted		612,793		$	4.32
Exercised		(112,793	)	$	6.29
Expired / Cancelled		(54,000	)	$	32.92
Outstanding June 30, 2014		757,462		$	6.65		2.2	$	-
Exercisable, June 30, 2014		257,462		$	12.03		2.63	$	-

WARRANTS:
Outstanding and exercisable, June 30, 2012		261,719		$	4.24		6.59	$	-
Granted / adjusted		5,922		$	0.27
Exercised		(104,517	)	$	5.12
Expired		-			-
Outstanding and exercisable, June 30, 2013		163,124		$	7.29		3.19	$	451,519
Granted / adjusted		-			-
Exercised		-			-
Expired		-			-
Outstanding and exercisable, June 30, 2014		163,124		$	7.29		2.2	$	-

The following table summarizes information about stock options and warrants outstanding and exercisable as of June 30, 2014:

Exercise Price			Number Outstanding		Weighted Average Remaining Contractual Life		Weighted Ave Exericse Price		Number Exercisable		Weighted Average Remaining Contractual Life		Weighted Ave Exericse Price
OPTIONS:

$0.10	-	$9.90		683,462		2.24	$	4.77		183,462		2.97	$	7.21
$10.00	-	$19.90		14,000		1.61	$	18.18		14,000		1.61	$	18.18
$20.00	-	$29.90		60,000		1.82	$	25.33		60,000		1.82	$	25.33
	Totals			757,462		2.20	$	6.65		257,462		2.63	$	12.03

WARRANTS:
$5.00	-	$7.50	163,124	2.20	$	7.29	163,124	2.20	$	7.29
	Totals		163,124	2.20	$	7.29	163,124	2.20	$	7.29

The assumptions used in calculating the fair value of options granted using the Black-Scholes option-pricing model for options granted during the years ended June 30, 2014 and 2013 are as follows:

	June 30, 2014			June 30, 2013
Risk-free interest rate	0.05%	-	0.47%	0.01%	-	0.11%
Expected life (months)	1	-	24	1	-	3
Expected volatility	17.5%	-	57.88%	13.95%	-	33.22%
Expected dividend		0%			0%

The weighted average grant-date fair value for the options granted during the years ended June 30, 2014 and 2013, was $1.32 and $1.41, respectively.

The Company recorded compensation expense of $189,937 and $678,494 for the years ended June 30, 2014 and 2013, respectively, related to vested options. The compensation expense related to the unvested options as of June 30, 2014 was $622,490 which will be recognized over the weighted average period of 1 year.

The following table summarizes stock grants awarded as compensation:

	# of shares			Weighted Average Grant Date Fair Value ($)

Unvested, June 30, 2012		-			-
Granted		3,750		$	5.48
Vested		(3,750	)	$	5.48
Unvested, June 30, 2013		-			-
Granted		337,899		$	5.78
Vested		(105,899	)	$	10.00
Unvested, June 30, 2014		232,000		$	3.88

For the years ended June 30, 2014 and 2013, the company recorded compensation expense of $1,059,186 and $6,850 respectively. The compensation expense related to the unvested stock grants as of June 30, 2014 was $892,400 which will be recognized over the weighted average period of 1 year.

- Definition

The entire disclosure for compensation-related costs for equity-based compensation, which may include disclosure of policies, compensation plan details, allocation of equity compensation, incentive distributions, equity-based arrangements to obtain goods and services, deferred compensation arrangements, employee stock ownership plan details and employee stock purchase plan details.

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