NOTE 14

SHARE-BASED COMPENSATION

Common Stock awarded to Employees by a Majority Shareholder

Pursuant to a contractual arrangement between Magnify Wealth and Mr. Yang “Roy” Yu, the Company’s then Chief Financial Officer, Mr. Yu was entitled to receive up to 450,000 shares of the Company’s common stock issued to Magnify Wealth in the Share Exchange. 112,500 of such shares were transferred to Mr. Yu immediately upon consummation of the Share Exchange. 112,500 of such shares were released to Mr. Yu on each of the first, second and third anniversary of the consummation of the Share Exchange. In 2011, all the 450,000 shares have been released to Mr. Yu. In connection with these share-based payments to Mr. Yu, the Company recognized compensation expense of $nil, $nil and $211,875 based on the grant-date fair value of the Company’s common stock of $2.26 per share, for the years ended December 31, 2013, 2012, and 2011, respectively.

Options granted to Independent Directors and Employees

The Company grants share-based awards, primarily stock options, to their independent directors and employees.

On January 14, 2011, the Company granted options to one of its independent directors, Mr. Kelvin Lau to purchase 15,000 shares of the Company’s common stock at a strike price of $10.64 per share, in consideration of his services to the Company. The options vest and become exercisable in equal installments on December 3, 2010, January 16, 2011, March 1, 2011 and April 14, 2011 and will expire 10 years from the date of grant.

On June 3, 2011, the Company granted options to each of its independent directors, Mr. Robert Bruce, Mr. Jonathan Serbin and Mr. Kelvin Lau to purchase 20,000 shares of the Company’s common stock at a strike price of $6.49 per share, in consideration of their services to the Company. The options vest and become exercisable in equal installments on July 14, 2011, October 14, 2011, January 14, 2012 and April 14, 2012 and will expire 10 years from the date of grant.

On October 23, 2011, the Company granted options to two of its employees, Mr. Peng Zhu and Mr. Chunming Chu, to purchase 100,000 shares each of the Company’s common stock at a strike price of $4.50 per share, in consideration for their services to the Company. These options vest in installments of 40,000, 30,000 and 30,000 shares on October 23, 2012, 2013 and 2014, respectively, and will expire 10 years from the date of grant.

On October 23, 2011, Ms. Daphne Huang entered into an employment agreement with the Company to serve as Chief Financial Officer. The agreement is for a one-year term, renewable annually at the Company’s option up to an additional two years. Ms. Huang will receive annual cash compensation of $200,000 and will be awarded a stock option to purchase up to 225,000 shares of common stock at $4.50 per share, which shall vest in equal installments on October 23, 2012, 2013 and 2014, so long as Ms. Huang is serving as CFO at each such time, and will expire 10 years from the date of grant.

On October 23, 2011, Mr. Yu entered into a new employment agreement with Lihua Electron to serve as Executive Vice President of Finance of Lihua Electron and of the Company. The agreement is for a one-year term, renewable annually at the Company’s option up to an additional two years. Mr. Yu will receive annual cash compensation of $150,000 and will be awarded a stock option to purchase up to 100,000 shares of common stock at $4.50 per share, which shall vest in installments of 40,000, 30,000 and 30,000 shares on October 23, 2012, 2013 and 2014, respectively, so long as Mr. Yu is serving as Executive Vice President of Finance, or as an officer of the Company at each such time, and will expire 10 years from the date of grant. Mr. Yu resigned on November 7, 2012.

On April 26, 2012, the Company granted options to each of its independent directors, Mr. Robert Bruce, Mr. Jonathan Serbin and Mr. Kelvin Lau to purchase 20,000 shares of the Company’s common stock at a strike price of $5.63 per share, in consideration of their services to the Company. The options vest and become exercisable in equal installments on July 14, 2012, October 14, 2012, January 14, 2013 and April 14, 2013 and will expire 10 years from the date of grant.

On May 30, 2013, the Company granted options to each of its independent directors, Mr. Robert Bruce, Mr. Jonathan Serbin and Mr. Kelvin Lau to purchase 20,000 shares of the Company’s common stock at a strike price of $5.60 per share, in consideration of their services to the Company. The options vest and become exercisable in equal installments on July 14, 2013, October 14, 2013, January 14, 2014 and April 14, 2014 and will expire 10 years from the date of grant.

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. Accordingly, the Company recognized a compensation expense of $343,513, $382,089 and $286,337 for the years ended December 31, 2013, 2012 and 2011, respectively.

Options issued and outstanding at December 31, 2013, 2012, and 2011 and their movements during the three years are as follows:

	Number of Underlying Shares	Weighted-Average Exercise Price Per Share		Aggregate Intrinsic Value⁽¹⁾		Weighted-Average Contractual Life Remaining in Years
Outstanding at January 1, 2011	115,000		6.74	$	517,450	9.00
Granted	600,000		4.85		-	10.00
Exercised	-		-		-	-
Expired	-		-		-	-
Forfeited	-		-		-	-
Outstanding at December 31, 2011	715,000		5.16	$	213,300	9.43
Granted	60,000		5.63		-	10.00
Exercised	-		-		-	-
Expired	-		-		-	-
Forfeited	(60,000)		4.50		-	-
Outstanding at December 31, 2012	715,000		5.25	$	65,700	8.47
Granted	60,000		5.60		-	10.00
Exercised	(110,000)		4.50		-	-
Expired	-		-		-	-
Forfeited	-		-		-	-
Outstanding at December 31, 2013	665,000		5.41	$	551,300	7.64
Exercisable at December 31, 2013	515,000	$	5.64	$	384,800	7.54

(1)

The intrinsic value of the stock options at December 31, 2013, 2012 and 2011 is the amount by which the market value of the Company’s common stock of $5.72, $4.39 and $4.76 as of December 31, 2013, 2012 and 2011 exceeds the exercise price of the option.