(12)SHARE BASED COMPENSATION

 

2005 Share incentive plan

 

In April 2005, the Company adopted a share incentive plan (the “2005 Plan”), pursuant to which the Company is authorized to issue options to officers, employees, directors and consultants of the Group to purchase up to 2,894,000 of its common shares. In October 2007, the Company’s board of directors approved an increase in the number of shares reserved for issuance under the 2005 Plan to 3,310,300 shares. The 2005 Plan expired in April 2015. Options awards provide for accelerated vesting if there is a change in control (as defined in the 2005 Plan).

 

2008 Share incentive plan

 

On January 7, 2008, the Company adopted a share incentive plan (the “2008 Plan”), pursuant to which the Company is authorized to issue options and other share-based awards to officers, employees, directors and consultants of the Group to purchase up to 336,307 of its common shares, plus, unless the board of directors determines a lesser amount, an annual increase on January 1 of each calendar year beginning in 2009 equal to the lesser of 1) one percent of the number of shares issued and outstanding on December 31 of the immediately preceding calendar year, and 2) 336,307 shares. The 2008 Plan expires in ten years. Options awards provide for accelerated vesting if there is a change in control (as defined in the 2008 Plan). As of March 31, 2016,  3,026,763 shares were reserved for issuance under the 2008 Plan.

 

Under both the 2005 Plan and 2008 Plan, share options are generally granted with 25% vesting on the first anniversary of the grant date and the remaining 75% vesting ratably over the following 36 months, unless a shorter or longer duration is established at the time of the option grant. Share options are granted at an exercise price equal to the fair market value of the Company’s share at the date of grant and expire 10 years from the grant date.

 

Under the 2008 Plan, nonvested shares are granted with a graded vesting as to 25% at the end of each year from the grant date over 4 years.

 

For the graded vesting share options and nonvested shares, the Company recognizes the compensation cost over the requisite service period for each separately vesting portion of the award as if the award is, in substance, multiple awards.

 

During the year ended March 31, 2013, the Company extended the exercise period of vested share options of two employees upon their resignation. In addition, the Company also continued the vesting of certain unvested share options and nonvested shares of these former employees. The modification resulted in additional compensation expense of RMB1,294,834 recognized in the “general and administrative expense” for the year ended March 31, 2013.

 

In October 2013, 1,469,460 share options were granted to an officer, 25% of the options vest on the first anniversary of the grant date with the remaining 75% vesting evenly over the following three years. The exercise price of these options is USD2.50 per common share. In October 2014, the remaining 75% share options were forfeited upon the officer’s resignation. The expense of RMB 4,014,513 related to the unvested share options recognized previously was reversed.

 

In February 2015, 1,469,460 share options were granted to an officer, 25% of the options vest on the first anniversary of the grant date with the remaining 75% vest evenly over the following three years. The exercise price of these options is USD2.24 per common share.

 

In February 2015, 100,000 and 114,314 common shares of the Company were granted to two officers respectively, using the Company’s treasury shares. These common shares were immediately vested on grant date. The fair value of the common shares on the grant date of RMB 2,831,396 was recognized as “general and administrative expense” for the year ended March 31, 2015. The difference between the cost of the treasury shares repurchased of RMB 2,983,072 and the fair value of the common shares on grant date of RMB 151,676 was recognized as a reduction of additional paid-in capital.

 

In April 2015, the Company extended the exercise period of vested share options of certain employees for an additional six months. The modification resulted in additional compensation expense of RMB 1,635,726 for the year ended March 31, 2016. All of these share options were expired without any exercise as of March 31, 2016.

 

A summary of the shares options activities for the years ended March 31, 2014, 2015 and 2016 is presented below:

 

 

The aggregate intrinsic value of options outstanding and exercisable at March 31, 2016, was determined based on the closing price of the Company’s common shares on March 31, 2016.

 

The total intrinsic value of options exercised during the years ended March 31, 2015 and 2016 was USD 46,500 and nil respectively.

 

Information relating to options outstanding and exercisable as of March 31, 2016 is as follows:

 

 

The Company calculated the fair value of the share options on the grant date, and for the year- ended March 31, 2016, the modification date, using the Black-Scholes-Merton pricing valuation model. The assumptions used in the valuation model are summarized as follows:

 

 

The expected volatility was based on the historical volatilities of the Company. The expected term was related to the period of time the options are expected to be outstanding. The risk-free rate for periods within the contractual life of the option is based on the United States treasury yield curve in effect at the time of grant or modification.

 

Compensation expense for share options of RMB 3,946,384, RMB 984,595 and RMB 8,040,512 was recognized for the years ended March 31, 2014, 2015 and 2016.

 

As of March 31, 2016, RMB 5,934,262 of total unrecognized compensation expense related to nonvested share options is expected to be recognized over a weighted average period of approximately 2.90 years.

 

Nonvested shares

 

A summary of the nonvested shares activities for the years ended March 31, 2014, 2015 and 2016 is presented below:

 

 

The total fair value of shares vested during the years ended March 31, 2014, 2015 and 2016, was USD 560,975, USD 821,250 and USD 831,375 respectively.

 

Upon the vesting of the nonvested shares, the Company withholds the shares issued to the employees to meet the relevant minimum tax withholding requirements. For the years ended March 31, 2014, 2015 and 2016, the Company withheld 51,676, 54,000 and 51,234 vested shares upon the vesting of the nonvested shares to satisfactory the minimum tax withholding obligation.

 

Compensation expense recognized for nonvested shares for the years ended March 31, 2014, 2015 and 2016 is allocated to the following expense items:

 

 

As of March 31, 2016, RMB 288,145 of total unrecognized compensation expense related to nonvested shares is expected to be recognized over a weighted average period of approximately 1.20 years.