EMPLOYEE STOCK OPTION PLAN

3 Months Ended

Jun. 30, 2018

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

EMPLOYEE STOCK OPTION PLAN

10. EMPLOYEE STOCK OPTION PLAN

Majesco 2015 Equity Incentive Plan

In the three months ended June 30, 2018, we recognized $452, in equity-based compensation expense in our consolidated financial statements compared to $355 in the three months ended June 30, 2017.

In June 2015, Majesco adopted the Majesco 2015 Equity Incentive Plan (the “2015 Plan”). Under the 2015 Plan, options and stock awards for the purchase of up to 3,877,263 shares may be granted by the Compensation Committee of the Board of Directors to our employees, consultants and directors at an exercise or grant price determined by the Compensation Committee of the Board of Directors on the date of grant. Options may be granted as incentive or nonqualified stock options with a term of not more than ten years. The 2015 Plan allows the grant of restricted or unrestricted stock awards or awards denominated in stock equivalent units or any combination of the foregoing, which may be paid in common stock or other securities, in cash, or in a combination of common stock or other securities and cash. On June 30, 2018, an aggregate of 569,874 shares were available for grant under the 2015 Plan. On May 9, 2018, the Board of Directors of Majesco approved an increase of 2,000,000 shares in the amount of shares available for issuance under the 2015 Plan from 3,877,263 shares to 5,877,263 shares. This increase is currently being submitted for approval by the shareholders of Majesco at their upcoming 2018 annual meeting.

Majesco uses the Black-Scholes-Merton option-pricing model (“Black-Scholes”) to measure fair value of the share-based awards. The Black-Scholes model requires us to make significant judgments regarding the assumptions used within the model, the most significant of which are the expected stock price volatility, the expected life of the option award, the risk-free interest rate of return and dividends during the expected term.

- Expected volatility is based on peer entities as historical volatility data for Majesco’s common stock is limited.

- In accordance with ASC 718, Majesco uses the simplified method for estimating the expected term when measuring the fair value of employee stock options using the Black-Scholes option pricing model. Majesco believes the use of the simplified method is appropriate due to the employee stock options qualifying as “plain-vanilla” options under the criteria established by SAB Topic 14.

- The risk-free interest rate for periods within the contractual life of the option is based on the U.S. Treasury yields for an equivalent term at the time of grant.

- Majesco does not anticipate paying dividends during the expected term.

	As of June 30,
Variables (range)	2018			2017
Expected volatility		41%–50	%		41%–50	%
Weighted-average volatility		41	%		41	%
Expected dividends		0	%		0	%
Expected term (in years)		3-5			3-5
Risk-free interest rate		0.71	%		0.46	%

As of June 30, 2018, there was $3,553 of total unrecognized compensation costs related to non-vested share-based compensation arrangements previously granted by Majesco. That cost is expected to be recognized over a weighted-average period of 2.3 years.

A summary of the outstanding common stock options under the 2015 Plan is as follows:

	Shares			Exercise Price Per Share		Weighted-Average Remaining Contractual Life		Weighted-Average Exercise Price
Balance, April 1, 2018		3,278,143		$	4.79 – 7.72		7.69 years	$	5.27
Granted		10,000			5.25		9.85 years		5.25
Exercised		(12,500	)		4.92		-		4.92
Cancelled		(36,250	)		4.81 – 6.22		-		5.26
Expired		-			-		-		-
Balance, June 30, 2018		3,239,393		$	4.79 – 7.72		7.61 years	$	5.27

Of the stock options outstanding, an aggregate of 1,559,250 were exercisable as of June 30, 2018.

The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because our employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management’s opinion, the existing models do not necessarily provide a reliable single measure of the fair value of our employee stock options.

We follow FASB Accounting Standards Codification (“ASC”) 718, Accounting for Stock Options and Other Stock-Based Compensation. Among other items, ASC 718 requires companies to record the compensation expense for share-based awards issued to employees and directors in exchange for services provided. The amount of the compensation expense is based on the estimated fair value of the awards on their grant dates and is recognized over the required service periods. Our share-based awards include stock options and restricted stock awards. For restricted stock awards, the calculation of compensation expense under ASC 718 is based on the intrinsic value of the grant.

Warrants

As of June 30, 2018, there were warrants to purchase 25,000 shares of common stock outstanding. A summary of the terms of the outstanding warrants as of June 30, 2018 is as follows:

	Outstanding and Exercisable Warrants		Exercise Price Per Warrant		Weighted-Average Remaining Contractual Life		Weighted-Average Exercise Price
Balance, June 30, 2018		25,000	$	7.00		2.3 years	$	7.00

On September 1, 2015, Majesco issued to Maxim Partners LLC a five year warrant to purchase 25,000 shares of common stock of Majesco at an exercise price of $7.00 per share. The warrant was issued in connection with the engagement of the holder to perform certain advisory services to the Group. The number of shares issuable upon exercise of the warrant may be reduced under certain circumstances of non-performance under the services agreement. The warrant may be exercised at any time after September 1, 2016 and will expire, if unexercised, on September 1, 2020. The warrant contains certain anti-dilution adjustment protection in case of certain future issuances of securities, stock dividends, split and other transactions affecting Majesco’s securities. The holder of the warrant is entitled to piggyback registration rights in case of certain registered securities offerings by Majesco.

Employee Stock Option Scheme of Majesco Limited — Plan 1

Certain employees of the Group participate in the Group’s parent company, Majesco Limited’s, employee stock option plan. The plan, termed as “ESOP plan 1,” became effective June 1, 2015, the effective date of the demerger from Mastek Ltd. Group employees who were issued options in the earlier ESOP plans of Mastek Ltd. were given options of Majesco Limited following the demerger. Under the plan, Majesco Limited also grants newly issued options to the employees of MSSIPL from time to time. During the three months ended June 30, 2018, options to purchase36,000 shares of common stock were granted under ESOP plan 1 of Majesco Limited. The options were granted at the market price on the grant date.

As of June 30, 2018, the total future compensation cost related to non-vested options not yet recognized in the Statement of Operations was $866, and the weighted average period over which these awards are expected to be recognized was 1.98 years. The weighted average remaining contractual life of options expected to vest as of June 30, 2018 is 8.98 years.

Majesco Limited calculated the fair value of each option grant on the date of grant using the Black-Scholes option-pricing method with the following assumptions:

	As of June 30,
	2018			2017
Weighted-average volatility		46.64	%		51.02	%
Expected dividends		0.00	%		0.00	%
Expected term (in years)		5.6 Years			6 Years
Risk-free interest rate		7.88	%		7.46	%

The summary of outstanding options of Majesco Limited as of June 30, 2018 is as follows:

	No of Options Outstanding		Exercise Price Per Share		Weighted-Average Remaining Contractual Life		Weighted-Average Exercise Price
Balance, June 30, 2018		855,757		$0.10 - $3.00		6.30		2.34
		620,684		$3.10 - $6.00		8.22		6.88
		85,500		$6.10 - $9.00		8.32		24.81
		1,561,941

Of the stock options of Majesco Limited outstanding and held by Group employees, an aggregate of 1,057,941 are exercisable as of June 30, 2018.

Majesco Performance Bonus Plan

Majesco established the Majesco Performance Bonus Plan (the “Performance Bonus Plan”). The Performance Bonus Plan is administered by the Compensation Committee of the Board of Directors of Majesco. The purpose of the Performance Bonus Plan is to benefit and advance the interests of the Group by rewarding selected employees of the Group for their contributions to the Group’s financial success and thereby motivate them to continue to make such contributions in the future by granting them performance-based awards that are fully tax deductible to the Group.

During the three months ended June 30, 2018, we accrued $3,054 in incentive compensation expense in our consolidated financial statements compared to $(5) during the three months ended June 30, 2017.

Majesco Employee Stock Purchase Plan

Majesco established the Majesco Employee Stock Purchase Plan (the “ESPP”). The ESPP is intended to be qualified under Section 423 of the Internal Revenue Code. If a plan is qualified under Section 423, employees who participate in the ESPP enjoy certain tax advantages. The ESPP allows employees to purchase shares of Majesco common stock at a discount, without being subject to tax until they sell the shares, and without having to pay any brokerage commissions with respect to the purchases.

The purpose of the ESPP is to encourage the purchase of Majesco common stock by our employees, to provide employees with a personal stake in our business and to help us retain our employees by providing a long range inducement for such employees to remain in our employ.

The ESPP provides employees with the right to purchase shares of common stock through payroll deductions. The total number of shares available for purchase under the ESPP is 2,000,000. The ESPP Plan became effective January 1, 2016. As of June 30, 2018, we had issued and sold 104,465 shares under the ESPP.