NOTE 12 - STOCK BASED COMPENSATION

Our board of directors, upon the recommendation of the compensation committee of our board of directors, approved the 2016 TechPrecision Equity Incentive Plan, or the 2016 Plan, on November 10, 2016. Our stockholders approved the 2016 Plan at the Company’s Annual Meeting of Stockholders, or the Annual Meeting, on December 8, 2016. The 2016 Plan succeeds the 2006 Plan and applies to awards granted after the Annual Meeting. We have designed the 2016 Plan to reflect our commitment to having best practices in both compensation and corporate governance. The 2016 Plan provides for a share reserve of 5,000,000 shares of common stock.

The 2016 Plan authorizes the award of incentive and non-qualified stock options, restricted stock awards, restricted stock units, and performance awards to employees, directors, consultants, and other individuals who provide services to TechPrecision or its affiliates. The purposes of the 2016 Plan are to: (a) enable TechPrecision and its affiliated companies to recruit and retain highly qualified employees, directors and consultants; (b) provide those employees, directors and consultants with an incentive for productivity; and (c) provide those employees, directors and consultants with an opportunity to share in the growth and value of the Company. Subject to adjustment as provided in the 2016 Plan, the maximum number of shares of common stock that may be issued in respect of awards under the 2016 Plan is 5,000,000 shares (inclusive of awards issued under the 2006 Long-Term Incentive Plan, or the 2006 Plan, that remained outstanding as of the effective date of the 2016 Plan), all of which shares may be issued in respect of incentive stock options. On December 8, 2016, there were 1,958,500 shares underlying awards issued under the 2006 Plan that remained outstanding. The 2006 Plan expired under its own terms in February 2016. Awards granted under the 2006 Plan will remain outstanding until expiration or settlement. Shares of our common stock subject to awards that expire unexercised or are otherwise forfeited shall again be available for awards under the 2016 Plan.

On March 31, 2017, in connection with a consulting agreement with our retiring directors, we granted stock options to the retiring members of our board of directors to collectively purchase 66,668 shares of common stock at an exercise price of $0.75 per share, the fair market value on the date of grant. All of the options granted vested immediately and will expire on the second anniversary of the grant date. The fair value of the options is $24,350 and was expensed on March 31, 2017.

On December 27, 2016, in recognition of performance and to increase the alignment of his interests with those of our stockholders, TechPrecision granted to Alexander Shen, TechPrecision’s Chief Executive Officer, a non-qualified stock option to purchase 1,000,000 shares of our common stock at an exercise price of $0.50, the closing price of our common stock on the date of the grant. The grant was made under the 2016 Plan and a Non-Qualified Stock Option Award Agreement, dated December 27, 2016, from TechPrecision to Mr. Shen. The option was immediately vested and exercisable with respect to 666,667 shares of common stock and will become vested and exercisable with respect to the remaining 333,333 shares on December 27, 2017, provided that Mr. Shen remains in continuous service as an employee of the Company through such vesting date. The options have a remaining weighted average contract life of nine years. The fair value of the options is $418,995 and $314,350 was expensed in the fiscal year ended March 31, 2017. At March 31, 2017, there was $133,117 of total unrecognized compensation cost related to the stock options, and these costs are expected to be recognized over the next twelve months.

On July 1, 2015, we granted stock options to members of our board of directors to collectively purchase 30,000 shares of common stock at an exercise price of $0.10 per share, the fair market value on the date of grant. Fifty percent of the options vested upon the six month anniversary of the grant date while the remaining fifty percent of the options vested upon the eighteen month anniversary of the grant date.

On August 12, 2015, we granted stock options to our chief executive officer to purchase in total 1,000,000 shares of common stock at an exercise price of $0.08 per share, the fair market value on the date of grant. One third of the options vested on the date of the grant, one third of the options vested on the first anniversary of the grant date, and the final one third of the options will vest on the second anniversary of the grant date.

On January 21, 2016, we granted stock options to our chief financial officer to purchase in total 500,000 shares of common stock at an exercise price of $0.17 per share, the fair market value on the date of grant. One third of the options vested on the date of the grant, one third of the options vested on the first anniversary of the grant date, and the final one third of the options will vest on the second anniversary of the grant date.

The fair value of the options we grant is estimated using the Black-Scholes option-pricing model based on the closing stock prices at the grant date and the weighted average assumptions specific to the underlying options. Expected volatility assumptions are based on the historical volatility of our common stock. The average dividend yield over the historical period for which volatility was computed is zero. The risk-free interest rate was selected based upon yields of five-year U.S. Treasury issues. We used the simplified method for all grants to estimate the expected life of the option. We assume that stock options will be exercised evenly over the period from vesting until the awards expire. As such, the assumed period for each vesting tranche is computed separately and then averaged together to determine the expected term for the award. The assumptions utilized for options granted during the period presented range from 110.2% to 123.8% for volatility, 1.93% to 2.07% for the risk free interest rate, and approximately two to six years for the expected life. At March 31, 2017, there were 1,997,332 shares available for grant under the 2016 Plan.

The following table summarizes information about options for the most recent annual income statements presented:

							Weighted
							Average
			Weighted		Aggregate		Remaining
	Number Of		Average		Intrinsic		Contractual Life
	Options		Exercise Price		Value		(in years)
Outstanding at 3/31/2015		1,190,500	$	1.049	$	21,600		5.18
Granted		1,530,000	$	0.110
Exercised		(135,000)	$	0.080
Forfeited		(187,000)	$	0.841
Outstanding at 3/31/2016		2,398,500	$	0.711	$	183,900		7.90
Granted		1,066,668	$	0.516		250,000
Expired		(440,000)	$	0.770
Forfeited		(22,500)	$	0.912
Outstanding at 3/31/2017		3,002,668	$	0.387	$	1,246,600		5.72
Vested or expected to vest at 3/31/2017		3,002,668	$	0.387	$	1,246,600		5.72
Exercisable and vested at 3/31/2017		2,169,334	$	0.434	$	843,266		5.72

The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (the difference between the closing stock price on the last trading day of the fourth quarter of fiscal 2017 and fiscal 2016 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on March 31, 2017. This amount changes based on the fair market value of the Company’s common stock. The total intrinsic value of options exercised for the year ended March 31, 2016 was $10,800.

The following table summarizes the status of our stock options outstanding but not vested for the year ended March 31, 2017:

			Weighted
	Number of		Average
	Options		Exercise Price
Outstanding at 3/31/2015		112,500	$	0.664
Granted		1,530,000	$	0.110
Forfeited		(40,000)	$	0.670
Vested		(574,166)	$	0.216
Outstanding at 3/31/2016		1,028,334	$	0.117
Granted		1,066,668	$	0.516
Forfeited		(13,333)	$	0.670
Vested		(1,248,335)	$	0.352
Outstanding at 3/31/2017		833,334	$	0.266

The total fair value of shares vested during the year was $439,835. Other information relating to stock options outstanding at March 31, 2017 is as follows:

			Weighted
			Average
			Remaining		Weighted				Weighted
	Options		Contractual		Average		Options		Average
Range of Exercise Prices:	Outstanding		Term		Exercise Price		Exercisable		Exercise Price
$0.01-$1.00		2,821,668		6.40	$	0.31		1,988,334	$	0.33
$1.01-$1.96		181,000		3.28	$	1.60		181,000	$	1.60
Totals		3,002,668						2,169,334

Restricted Stock Awards

In December 2014, each non-employee director waived any compensation owed to them for their service to the Company. On November 10, 2016, our board of directors determined that it would grant shares of common stock to each of our directors as compensation for their service to the Company during the period from January 1, 2014 to November 10, 2016. Accordingly, our board of directors granted 600,000 shares of common stock to Mr. Leonard Anthony, 250,000 shares of common stock to each of Mr. Philip Dur and Mr. Michael Holly, and 200,000 shares of common stock to Mr. Robert Isaman and Mr. Andrew Levy. The grant of shares of common stock to Mr. Anthony also recognizes his uncompensated service as Executive Chairman of the Company during the period from January 1, 2014 to November 17, 2014. The Company recorded an expense of $780,000 in connection with these grants of shares of common stock, based on the closing market price of our common stock on the date of grant.