SHARE-BASED COMPENSATION

6 Months Ended

Jun. 30, 2014

SHARE-BASED COMPENSATION [Text Block]

NOTE 12 SHARE-BASED COMPENSATION

The Company was authorized to issue an aggregate of 2,500,000 shares of its common stock under the 2009 Equity Incentive Plan (“Plan”) as equity awards of incentive stock options, non-statutory stock options, restricted stock, and other equity incentives to employees, officers, directors and consultants. The Plan expires in 2019 and as of June 30, 2014, there were 580,000 shares of common stock available for grant pursuant to the Plan.

Stock options granted to Management

On July 16, 2010, the Company entered into a stock option agreement with Mr. Robert Tick (“Mr. Tick”), the Chief Financial Officer of the Company, under the Company’s 2009 Equity Incentive Plan. Pursuant to the terms of the stock option agreement, Mr. Tick was granted options to purchase an aggregate of 150,000 shares of common stock of the Company, consisting of, an option to purchase 75,000 shares that would vest in 2011 with an exercise price of $5.00 per share, and an option to purchase 75,000 shares that would vest in 2012 with an exercise price of $7.00 per share. Each of these options expires three years after their respective vesting dates.

According to the stock option agreement, in the event Mr. Tick’s employment with the Company is terminated for any reason except for death or disability, he may exercise these options only to the extent that these options would have been exercisable on the termination date and no later than three months after the termination date. If Mr. Tick’s employment is terminated because of his death or disability, these options may be exercised only to the extent that these options would have been exercisable by Mr. Tick on the termination date and must be exercised by Mr. Tick no later than twelve months after the termination date. If the employment is terminated for Cause as defined in the stock option Agreement, these options will terminate immediately. In no event will these options be exercised later than December 31, 2015.

On January 24, 2011, the Compensation Committee of the Board approved the repricing of the options that the Company granted to Mr. Tick on July 16, 2010. As a result, each such option outstanding had an exercise price of $3.50 per share which was higher than the closing price of the Company’s common stock on the OTC Bulletin Board on the date of repricing. In addition, the vesting schedules of the outstanding options granted to Mr. Tick were changed from vesting on an annual basis to vesting on a semi-annual basis.

On August 8, 2013, the Company entered into a stock option agreement with Mr. Tick, under the Company’s 2009 Equity Incentive Plan. Pursuant to the terms of the stock option agreement, Mr. Tick was granted options to purchase an aggregate of 75,000 shares of common stock of the Company, consisting of, an option to purchase 37,500 shares that would vest in November 15, 2013 with an exercise price of $0.83 per share, and an option to purchase 37,500 shares that would vest in April 15, 2014 with an exercise price of $0.83 per share. Each of these options expires three years after their respective vesting dates.

Stock options granted to Management (continued)

In accordance with the guidance provided in ASC Topic 718, Stock Compensation, the compensation costs associated with these options are recognized, based on the grant-date fair values of these options, over the requisite service period, or vesting period. Also in accordance with ASC Topic 718, incremental compensation cost is measured as the excess, if any, of the fair value of the modified award over the fair value of the original award immediately before its terms are modified. The fair value of the option award was estimated on the date of grant using the Black-Scholes option valuation model. The valuation was based on the assumptions noted in the following table.

Expected volatility	73%
Expected dividend	0%
Expected terms (in year)	1
Risk-free rate	0.12%

A summary of options issued and outstanding at June 30, 2014 and the movements since January 1, 2013 to June 30, 2014 are as follows:

				Weighted-
	Number of			Average		Aggregate	Weighted- Average
	Underlying			Exercise Price		Intrinsic	Contractual Life
	Shares			Per Share		Value (1)	Remaining in Years
Outstanding at January 1, 2013	150,000		$	3.50		-	2.25
Granted	75,000		$	0.28		96,750	3.08
Exercised	-			-		-	-
Expired	-			-		-	-
Forfeited						-
Outstanding at December 31, 2013	225,000		$	2.61	$	96,750	1.86
Granted	-			-		-	-
Exercised	-			-		-	-
Expired	(25,000	)	$	0.44		-	-
Forfeited	-			-		-	-
Outstanding at June 30, 2014	200,000		$	2.50	$	108,750	1.36
Exercisable at June 30, 2014	200,000		$	2.50	$	108,750	1.36

(1) The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value that would have been realized by the option holders had all option holders exercised their options on June 30, 2014. The intrinsic value of a stock option is the excess of the Company’s closing stock price on June 30, 2014 of $2.28 per share over the exercise price $0.83 per share, multiplied by the number of shares subject to the option.

The Company recognized compensation expense of $7,371, and nil in relation to the options granted to Mr. Tick for the six months ended June 30, 2014 and 2013, respectively.

Restricted shares granted to Management

On July 16, 2010, the Company also entered into a restricted shares grant agreement (the "Restricted Shares Grant Agreement") under the Company’s 2009 Equity Incentive Plan with Mr. Tick. Pursuant to the terms of the Restricted Shares Grant Agreement, the Company granted to Mr. Tick 150,000 restricted shares (the “Restricted Shares”) of the Company’s common stock subject to the vesting schedule therein. If Mr. Tick’s service with the Company ceases for any reason other than Mr. Tick’s (a) death, (b) disability, (c) retirement, or (d) termination by the Company without cause, any unvested restricted shares will be automatically forfeited to the Company.

On November 26, 2012, the Company also entered into a restricted shares grant agreement (the "Second Restricted Shares Grant Agreement") under the Company’s 2009 Equity Incentive Plan with Mr. Tick. Pursuant to the terms of the Second Restricted Shares Grant Agreement, the Company granted to Mr. Tick 20,000 restricted shares (the “Restricted Shares”) of the Company’s common stock subject to the vesting schedule therein. If Mr. Tick’s service with the Company ceases for any reason other than Mr. Tick’s (a) death, (b) disability, (c) retirement, or (d) termination by the Company without cause, any unvested restricted shares will be automatically forfeited to the Company. The Second Restricted Shares vested immediately upon grant, on November 26, 2012.

On August 8, 2013, the Company entered into a restricted shares grant agreement (the "Third Restricted Shares Grant Agreement") under the Company’s Plan with Mr. Tick. Pursuant to the terms of the Third Restricted Shares Grant Agreement, the Company granted to Mr. Tick 75,000 restricted shares (the “Restricted Shares”) of the Company’s common stock subject to the vesting schedule therein. If Mr. Tick’s service with the Company ceases for any reason other than Mr. Tick’s (a) death, (b) disability, (c) retirement, or (d) termination by the Company without cause, any unvested restricted shares will be automatically forfeited to the Company. The Third Restricted Shares vest under the following schedule: 37,500 shares vest on November 15, 2013 and 37,500 shares vest on April 15, 2014.

The Restricted Shares vest under the following schedule:

Number of Shares	Vesting Date
25,000	December 31, 2010
25,000	June 30, 2011
25,000	December 31, 2011
25,000	June 30, 2012
20,000	November 26, 2012
25,000	December 31, 2012
25,000	June 30, 2013
37,500	November 15, 2013
37,500	April15, 2014

The Company recognizes compensation cost for an award with only service conditions that has a graded vesting schedule on a straight-line basis over the requisite service period for the entire award, provided that the compensation cost recognized at any date must at least equal the portion of the grant-date value of the award that is vested at that date. No compensation cost is recognized for instruments that are forfeited by the Company because a service condition or a performance condition is not satisfied.

Accordingly, the Company recognized compensation expense of $3,486 and $25,896, related to the restricted shares granted to Mr. Tick for the three months and six months ended June 30, 2014 ; and $37,917 and $75,417 for the three and six months ended June 30, 2013, respectively, based on the estimated grant-date fair value of the Company’s common stock of $0.83 on August 8, 2013, $1.15 on November 26, 2012 and $3.00 on July 16, 2010.

Restricted shares granted to Employees

On November 15, 2013, the Company entered into a restricted shares grant agreement (the “Restricted Shares Grant Agreement”) under the Company’s Plans with eight employees. Pursuant to the terms of the Restricted Shares Grant Agreement, the Company granted to these employees a total of 350,000 restricted shares to the Company’s common stock subject to the vesting schedule therein. If these employees’ service with the Company ceases for any reason other than these employees’ (a) death, (b) disability, (c) retirement, or (d) termination by the Company without cause, any unvested restricted shares will be automatically forfeited to the Company. The Restricted Shares vested immediately upon grant, on November 15, 2013.

The Company recognizes compensation cost for an award with only service conditions that has a graded vesting schedule on a straight-line basis over the requisite service period for the entire award, provided that the compensation cost recognized at any date must at least equal the portion of the grant-date value of the award that is vested at that date. No compensation cost is recognized for instruments that are forfeited by the Company because a service condition or a performance condition is not satisfied.

Accordingly, the Company recognized compensation expense of $414,000 related to the restricted shares granted to these employees for the year ended December 31, 2013, based on the estimated grant-date fair value of the Company’s common stock of $1.12.

Restricted shares granted to independent directors

On October 5, 2010, the Company entered into separate restricted shares grant agreements with the Company’s newly elected independent directors Mr. Henry Ngan, Ms. Virginia P’an and Mr. Jianbing Zhong. Pursuant the agreements, the Company granted, under the Company’s 2009 Equity Incentive Plan, to Mr. Ngan 40,000 restricted shares of the Company’s common stock, Ms. P’an 30,000 restricted shares and Mr. Zhong 20,000 restricted shares, as compensation for the services to be provided by them as independent directors.

On November 26, 2012, the Company entered into separate restricted shares grant agreements with the Company’s independent directors Mr. Henry Ngan, Ms. Virginia P’an, Mr. Jianbing Zhong and Mr. Richard E. Fearon, Jr. Pursuant the agreements, the Company granted, under the Company’s 2009 Equity Incentive Plan, to Mr. Ngan 30,000 restricted shares of the Company’s common stock, Ms. P’an 30,000 restricted shares, Mr. Zhong 20,000 restricted shares and to Mr. Fearon, Jr. 20,000 restricted shares, as compensation for the services to be provided by them as independent directors.

On January 24, 2011, the Company entered into an independent director contract and an indemnification agreement with Mr. Kurtzig, whereby the Company agreed to grant, under the Company’s 2009 Equity Incentive Plan, to Mr. Kurtzig 20,000 restricted shares of the Company’s common stock as compensation for the services to be provided by him and indemnify Mr. Kurtzig against expenses, judgments, fines, penalties or other amounts actually and reasonably incurred by Mr. Kurtzig in connection with any proceeding if Mr. Kurtzig acted in good faith and in the best interests of the Company.

On August 11, 2011, the Company entered into a restricted shares grant agreement with Mr. Kurtzig, whereby the Company agreed to grant, under the Company’s 2009 Equity Incentive Plan, to Mr. Kurtzig 10,000 restricted shares of the Company’s common stock as compensation for the services to be provided by him.

The restricted shares granted to independent directors will vest in equal installments on a semi-annual basis over a two-year period. If the independent director’s service with the Company ceases for any reason other than the independent director’s (a) death, (b) disability, (c) retirement, or (d) termination by the Company without cause, any unvested restricted shares will be automatically forfeited to the Company. On November 26, 2012, Mr. Kurtzig resigned as a member of the Board of Directors of the Company. As a result, the 5,000 unvested restricted shares have been automatically forfeited to the Company.

Accordingly, the Company recognized a total compensation expense of $33,196 and $33,196 related to the restricted shares granted to the directors for the six month ended June 30, 2014 and 2013, respectively, based on the estimated grant-date fair values of the Company’s common stock of $2.98 on October 5, 2010, $3.28 on January 24, 2011 and $2.41 on August 11, 2011 and $1.15 on November 26, 2012.

Restricted shares granted to consultant

On August 3, 2013, the Company entered into an investor relations agreement (the “Agreement”) under the Company’s Plans with a consultant. Pursuant to the terms of the Agreement, the Company would grant a total of 25,000 restricted shares to the Company’s investor relations consultant for consulting services provided by the consultant during the period August 2013 to June 2014. The Company issued 15,000 shares on September 16, 2013 (vesting date) and issued another 10,000 restricted shares on Jan 1, 2014. The Company recognized total compensation expense of $9,188 and $nil for the three months ended June 30, 2014 and 2013; and $23,746 and $nil for the six months ended June 30, 2014 and 2013, based on the fair values of the Company’s common stock of US$1.05 on September 16, 2013 for the 15,000 shares issued and the fair value of the Company's common stock of $2.58 on January 1, 2014 for the 10,000 shares issued. Pursuant to the terms of the Agreement, if during any three-month period, the Average Closing Price is $2.00 per share or greater, the Company shall issue 12,500 (twelve thousand five hundred) Incentive Shares to the consultant. During the first three-month period of 2014, the Average Closing Price is $2.84 per share. The Company then issued 12,500 shares to the consultant on April 2,2014. The Company recognized total compensation expense of $29,625 and nil for the six months ended June 30, 2014 and 2013, based on the fair values of the Company’s common stock of US$2.37 on April 2,2014 for the 12,500 shares issued.