Recon Technology, LtdRCON
Recon Technology, Ltd Stock Compensation Disclosure
NOTE 15. STOCK-BASED COMPENSATION
Stock-Based Awards Plan
2009 Incentive Plan The Company granted options to purchase 415,000 ordinary shares to its employees and non-employee director on March 26, 2012. The options have an excise price of $2.96, which was equal to the share price of the Company’s ordinary shares at March 26, 2012, and will vest over a period of five years, with the first 20% vesting on March 26, 2013. The options expire ten years after the date of grant, on March 26, 2022. The Company recognizes compensation cost for awards with graded vesting on a straight-line basis over the requisite service period for the entire award. The grant date fair value of the options was ¥10.06 ($1.49) per share.
2015 Incentive Plan The Company granted options to purchase 400,000 ordinary shares to its employees and non-employee director on January 31, 2015. The options have an excise price of $1.65, which was equal to the share price of the Company’s ordinary shares at January 31, 2015, and will vest equally over a period of three years, with one third vesting on January 31, 2016. The options expire ten years after the date of grant, on January 31, 2025.
| Stock price at grant date | | $ | 1.65 | |
| Exercise price (per share) | | $ | 1.65 | |
| Risk free rate of interest*** | | | 1.49 | % |
| Dividend yield | | | 0.0 | % |
| Life of option (years)** | | | 6.5 | |
| Volatility* | | | 297 | % |
* Volatility is projected using the performance of the Company’s common share performances.
** The life of options represents the average period the option is expected to be outstanding.
*** The risk-free interest rate is based on the Chinese international bond denominated in U.S. dollar, with a maturity that approximates the life of the option.
The Company recognizes compensation cost for awards with graded vesting on a straight-line basis over the requisite service period for the entire award. The grant date fair value of the options was ¥10.13 ($1.65) per share.
The following is a summary of the stock options activity:
| Stock Options | | Shares | | Weighted Average Exercise Price Per Share | | ||
| | | | | | | | |
| Outstanding as of June 30, 2014 | | | 415,600 | | $ | 4.37 | |
| Granted | | | 400,000 | | | 1.65 | |
| Forfeited | | | - | | | - | |
| Exercised | | | - | | | - | |
| Outstanding as of June 30, 2015 | | | 815,600 | | $ | 3.04 | |
| Granted | | | - | | | - | |
| Forfeited | | | - | | | - | |
| Exercised | | | - | | | - | |
| Outstanding as of June 30, 2016 | | | 815,600 | | $ | 3.04 | |
The following is a summary of the status of options outstanding and exercisable at June 30, 2016:
| Outstanding Options | | Exercisable Options | | ||||||||||
| Average Exercise Price | | Number | | Average Remaining Contractual life (Years) | | Average Exercise Price | | Number | | Average Remaining Contractual life (Years) | | ||
| $ | 6.00 | | 193,000 | | 3.08 | | $ | 6.00 | | 193,000 | | 3.08 | |
| $ | 2.96 | | 222,600 | | 5.74 | | $ | 2.96 | | 148,400 | | 5.74 | |
| $ | 1.65 | | 400,000 | | 8.59 | | $ | 1.65 | | 133,333 | | 8.59 | |
| | | | 815,600 | | | | | | | | | | |
The Share-based compensation expense recorded for stock options granted were ¥1,294,629 and ¥2,096,162 ($315,481) for the years ended June 30, 2015 and 2016, respectively. The total unrecognized share-based compensation expense for stock options as of June 30, 2016 was approximately ¥2.8 million ($0.43 million), which is expected to be recognized over a weighted average period of approximately 1.43 years.
Restricted Shares to senior management
As of June 30, 2016, the Company has granted restricted shares of common stock to senior management as follows:
On December 13, 2013, the Company granted 95,181 restricted shares to Mr. Yin Shenping and 135,181 restricted shares to Mr. Chen Guangqiang at an aggregate value of ¥4,207,496 ($688,782), based on the stock closing price of $2.99 at December 13, 2013. These restricted shares will vest over three years with one third of the shares vesting every year from the grant date. The two thirds were vested through June 30, 2016 and now non-restricted.
On January 31, 2015, the Company granted 150,000 restricted shares to Mr. Yin Shenping and 150,000 restricted shares to Mr. Chen Guangqiang at an aggregate value of ¥3,038,558($495,000), based on the stock closing price of $1.65 at January 31, 2015. These restricted shares will vest over three years with one third of the shares vesting every year from the grant date.
On October 18, 2015, the Company agreed to issue a total of 800,000 restricted shares to its employees and non-employee director as compensation cost for awards. The fair value of the restricted shares was $704,000 based on the closing stock price $0.88 at October 18, 2015.
The Share-based compensation expense recorded for restricted shares granted were ¥1,828,790 and ¥3,595,146 ($541,085) for the years ended June 30, 2015 and 2016, respectively. The total unrecognized share-based compensation expense for restricted shares granted as of June 30, 2016 was approximately ¥6.1 million ($0.90 million), which is expected to be recognized over a weighted average period of approximately 1.88 years.
Restricted Shares for service
For the year ended June 30, 2016, the Company has granted restricted shares of common stock to consultants as follows:
On July 19, 2014, the Company granted 50,000 restricted shares to a non-affiliate as compensation for certain consulting service. The fair value of the restricted shares was $190,000 based on the closing stock price $3.8 at July 18, 2014. On January 29, 2015, 10,000 of those restricted shares were canceled based on the agreement with the consultant.
On July 19, 2014, the Company decided to cancel 40,625 restricted shares, which was issued to Expert Asia Investment Ltd. on May 8, 2014, as the services were not provided pursuant to the agreement it had with the Company.
On February 2, 2015, the Company issued 24,000 restricted shares to Maxim Group LLC (“Maxim”) for certain consulting service. The fair value of the restricted shares was $43,440 based on the closing stock price $1.81 at February 2, 2015.
On April 8, 2015, the Company granted 40,000 restricted shares to a non-affiliate as compensation for certain consulting service. The fair value of the restricted shares was $62,400 based on the closing stock price $1.56 at April 8, 2015.
On November 16, 2015, the Company agreed to issue a total of 100,000 restricted shares to two investor relations firms in exchange for services. The fair value of the restricted shares was $108,400 based on the closing stock price of $1.08 on November 16, 2015.
On November 19, 2015, the Company issued 260,185 restricted shares to Bei Jing Tian Hong Tong Xin Technology Co. Ltd. (“BJTH”) for certain mold and software platform development services. The fair value of the restricted shares was $247,176 based on the closing stock price of $0.95 on November 19, 2015.
Following is a summary of the restricted stock grants:
| Restricted stock grants | | Shares | | |
| Non-vested as of June 30, 2014 | | | 230,362 | |
| Granted | | | 414,000 | |
| Cancelled | | | (10,000) | |
| Vested | | | (180,787) | |
| Non-vested as of June 30, 2015 | | | 453,575 | |
| Granted | | | 1,160,185 | |
| Cancelled | | | - | |
| Vested | | | (536,972) | |
| Non-vested as of June 30, 2016 | | | 1,076,787 | |
Among the vested shares for the year ended June 30, 2016, 176,787 shares were not issued until July 23, 2016.
About Stock Compensation Disclosures
Stock-based compensation disclosures detail the equity awards granted to employees and executives — including stock options, restricted stock units (RSUs), and performance shares — along with the valuation methods and assumptions used to expense them. This section reveals the true cost of talent retention and the alignment between management incentives and shareholder interests.
Key signals: total unrecognized compensation expense and its expected recognition period signal future earnings headwinds from already-granted awards. For stock options, examine Black-Scholes assumptions — expected volatility, risk-free rate, and expected term — as understating any of these reduces reported compensation expense. Compare stock compensation expense as a percentage of revenue against peers to assess dilution cost. Watch vesting schedules for acceleration clauses tied to change-of-control events. Performance-based awards with undemanding targets may indicate weak governance. Add back stock compensation to operating cash flow to calculate a more conservative free cash flow figure.