Note 32 - Share-based compensation expenses

9 Months Ended

Sep. 30, 2011

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

32.  Share-based compensation expenses

On July 12, 2010, the Company renewed the investor relations service contract with Hayden Communications International, Inc. (“HC”) for an18-month service contract commencing July 12, 2010.  As additional compensation, the Company granted HC 60,000 restricted shares of the Company’s common stock, which were issued on September 30, 2011. The shares were issued in accordance with the exemption from the registration provisions of the Securities Act of 1933, as amended, provided by Section 4(2) of such Act for issuances not involving any public offering. The 60,000 shares were valued at $3.80 per share, the closing bid of the Company’s common stock on the date of grant and the related compensation expense was amortized over the requisite service period.  Total compensation expenses recorded for the nine and three months ended September 30, 2011 were US$114,000 and US$38,000, respectively. The Company did not recognize any compensation expenses for the three months ended September 31, 2010, due to the amount was immaterial.

On November 30, 2009, the Company granted 5-year options to each of its three independent directors, Mr. Douglas MacLellan, Mr. Mototaka Watanabe and Mr. Zhiqing Chen, to purchase in the aggregate 54,000 shares of the Company’s common stock at a exercise price of US$5.00 per share, in consideration of their services to the Company. These options vest quarterly at the end of each 3-month period, in equal installments over the 24-month period from the date of grant.  However, upon a change of control, the option shall automatically become fully vested and exercisable as of the date of such changes of control. The company adopted Black-Scholes option pricing model to gauge the grant date fair value of these options.  The related compensation expenses were amortized over its vesting period.  Total compensation expenses recognized for the nine months ended September 30, 2011 and 2010 were US$123,260 and US$59,400, respectively.  Total compensation expenses recognized for the three months ended September 30, 2011 and 2010 were US$27,340 and US$17,820, respectively.

The Company estimates the fair value of these options using the Black-Scholes option pricing model based on the following assumptions:

Underlying stock price	$5
Expected term	3
Risk-free interest rate	1.10%
Dividend yield	-
Expected Volatility	150%
Exercise price of the option	$5
Value per option	$4.05

Underlying stock price is the closing bid price of the Company’s common stock on the date of grant.  As the three individuals receiving options are non-employee executive directors, the Company believes that forfeitures are highly unlikely, and termination is not applicable. As such, the Company developed a weighted-average expected term at 3 years based on analysis of the vesting schedule and exercise assumptions.  The risk-free interest rate is based on the 3 year U.S. Treasury rate. The dividend yield is calculated based on management’s estimate of dividends to be paid on the underlying stock. The expected volatility is calculated using historical data obtained from an appropriate index due to lack of liquidity of the Company’s underlying stock.  Exercise price of the option is the contractual exercise price of the option.

Options issued and outstanding at September 30, 2011 and their movements during the period are as follows:

	Option Outstanding						Option Exercisable
	Number of underlying shares		Weighted Average Remaining Contractual Life (Years)		Weighted Average Exercise Price		Number of underlying shares		Weighted Average Remaining Contractual Life (Years)		Weighted Average Exercise Price
Balance, January 1, 2011		54,000		3.92		$5.00		27,000		3.92		$5.00
Granted/Vested		-						20,250				$5.00
Forfeited		-						-
Exercised		-						-
Balance, September 30, 2011		54,000		3.17		$5.00		47,250		3.17		$5.00