Note 10 - Stock-based Compensation

6 Months Ended

Jun. 30, 2012

Note 10 - Stock-based Compensation:

Note 10 - Stock-based Compensation

Note 10 – Stock-based Compensation

2010 restricted stock plan

On June 1, 2010, the board of directors approved and the Company granted an award of 198,000 shares of restricted stock to certain key employees and directors of the Company. The award was made pursuant to the 2010 Restricted Share Stock Compensation Plan as approved by the Company’s Board of Directors. Under the plan, a maximum of 500,000 common shares may be delivered in satisfaction of awards. Key employees and directors are eligible to participate in the plan. Each grant of restricted shares under the Plan is subject to certain terms and conditions such as the shares cannot be transferred during the restriction period and the shares will be forfeited if the employment is terminated by the holder or the Company. Restricted stocks are granted at a strike price that is equal to the fair value of the Company’s stock on the date of grant.

The aggregate value of this award was $310,860, as determined by multiplying the number of shares times the fair value of the Company’s stock on June 1, 2010, the date of the grant award. The fair value is based on discounted free cash flow analyses, which involve management’s best estimate of future revenue, operation expenses, investing activities, and financing activities. In the valuation, the free cash flow is projected for five years and is determined by using the Company’s historical figures such as revenue and operation expenses which are compounded annually with 5% growth rate. Free cash flow occurring beyond the five-year projection period is assumed to be in perpetuity and determined by using the Perpetuity Growth Model in which the project net cash flow is divided by the risk-free rate. The sums of the five-year free cash flow together with the perpetual free cash flow are then discounted by the risk free rate. As a result, the fair value of the Company’s stock on the date of the grant award is $1.57 per share. When determining the risk-free rate, Hong Kong unsecured long term loan rate, 7.25%, in effect at the time of grant is used in the calculation.

2011 restricted stock plan

On June 1, 2011, the board of directors approved and the Company granted an award of 25,600 shares of restricted stock to certain key employees of the Company.  The award was made pursuant to the 2010 Restricted Share Stock Compensation Plan mentioned as above.  The aggregate value of this award was $71,145, as determined by multiplying the number of shares times the fair value of the Company’s stock on June 1, 2011, the date of the grant award.  The fair value is calculated based on the same approach mentioned above and the fair value of the Company’s stock on the date of the grant award is $2.79 per share. When determining the risk-free rate of this award, Hong Kong unsecured long term loan rate, 7.25%, in effect at the time of grant is used in the calculation.

2012 restricted stock plan

On June 1, 2012, the board of directors approved and the Company granted an award of 13,500 shares of restricted stock to a key employee of the Company.  The award was made pursuant to the 2010 Restricted Share Stock Compensation Plan mentioned as above.  The aggregate value of this award was $22,275, as determined by multiplying the number of shares times the fair value of the Company’s stock on June 1, 2012, the date of the grant award.  The fair value is calculated based on the same approach mentioned above and the fair value of the Company’s stock on the date of the grant award is $1.65 per share. When determining the risk-free rate of this award, Hong Kong unsecured long term loan rate, 8.25%, in effect at the time of grant is used in the calculation.

During the six months ended June 30, 2012 and 2011, the Company recognized $36,251 and $46,539 respectively, of stock-based compensation expense.