30. Share-Based Compensation

12 Months Ended

Dec. 31, 2012

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

30. SHARE-BASED COMPENSATION

Common Stock

In 2010, the Company issued a total of 63,915 shares of common stock at a market value of $985,374 for services provided by employees.

In 2011, the Company issued a total of 43,000 shares of common stock at a market value of $337,530 to its directors for services rendered to the Company as members of the Board for the period from August 1, 2010 through July 31, 2011.

On May 24, 2012, the Company issued a total of 70,000 shares of common stock to its directors and employees, of which a total of 10,000 shares were compensation for services rendered to the Company for the year 2011, and the remaining 60,000 shares were compensation for services rendered for the year 2012. Compensation cost for the 70,000 shares of common stock was recorded by the Company based on the fair value (i.e., the market price of its shares) on the date of grant of $334,600.

Share Options 

The Company has two stock option plans: the 2009 Stock Incentive Plan (the “2009 Plan”) and the 2003 Stock Incentive Plan (the “2003 Plan”). The Company applies authoritative guidance issued by FASB regarding share-based payments in accounting for the 2009 Plan and the 2003 Plan, which requires that compensation for services that a corporation receives through share-based compensation plans should be based on the fair value of options on the date of grant.

(1) 2009 Stock Incentive Plan

On May 7, 2009, the Company’s Board of Directors approved the 2009 Plan, which was approved by the Company’s shareholders at the Company’s 2009 Annual Meeting of Shareholders. The 2009 Plan permits grants of certain equity incentives, including incentive stock options, nonqualified stock options, restricted stock awards, performance stock awards and other equity-based compensation, to certain employees, directors, officers, consultants, agents, advisors and independent contractors of the Company and its subsidiaries. The total number of shares of the Company’s common stock initially authorized for issuance under the 2009 Plan is 2,000,000 plus any authorized shares that, as of May 7, 2009, were available for issuance under the Company’s 2003 Stock Incentive Plan.

On May 7, 2009, the Compensation Committee of the Board of Directors (the “Compensation Committee”) granted an aggregate of 2,073,190 performance stock options to certain officers and employees of the Company under the 2009 Plan. The performance stock options each had an exercise price of $16.86 and a contractual life of 6 years. The performance stock options were to vest in two equal tranches on the fourth and fifth anniversaries of the date such options were granted, provided that the recipient had met the performance criteria, including performance targets for each of the Company’s 2009, 2010 and 2011 fiscal years, and continued to be an employee of, or service provider to, the Company or its subsidiaries at the time of the relevant vesting dates. If the performance criteria were not met, the shares that would otherwise have vested on vesting dates were to be forfeited and cancelled.

The performance targets for the years ended December 31, 2009 were not met for any option recipient. Accordingly, the options granted were to be forfeited and cancelled. In December 2009, the performance targets were amended in order to limit the amount of options that would otherwise be forfeited and cancelled due to the failure to satisfy the annual performance goals to one-third of stock options granted for each of fiscal year 2009, 2010, and 2011. The incremental cost or benefit resulting from the modification is measured as the excess of the fair value of the modified award over the fair value of the original award immediately before its terms are modified and the effect on the number of instruments expected to vest. 421 employees were affected by this modification. For 2010 and 2011, no option recipient met the amended performance targets, and the options granted were forfeited and cancelled. For 2012 and 2011, no compensation expenses were recognized.

On October 15, 2009, an option to purchase 50,000 shares was granted to an employee that vests on the 12-month anniversary of the date of grant, conditioned upon continued employment on such date, and has an exercise price of $16 and contractual life of 4 years.

On October 23, 2009, the Compensation Committee granted an aggregate of 30,000 new performance stock options to an employee of the Company under the 2009 Plan. The performance stock options had an exercise price of $27.69 and a contractual life of 6 years. The performance options were to vest in two equal tranches on the fourth and fifth anniversaries of the date such options were granted, provided that the recipient had met performance criteria, including performance targets for each of the Company’s 2009, 2010 and 2011 fiscal years, and continued to be an employee of, or service provider to, the Company or its subsidiaries at the time of the relevant vesting dates. If the performance criteria were not met, the options that would otherwise have vested on the vesting dates were to be forfeited and cancelled. In June 2012, the employee terminated his employment with the Company, and the options granted were forfeited and cancelled.

On August 27, 2010, options to purchase 84,000 shares were granted to directors of the Company for their services provided for the period from August 1, 2010 through July 31, 2011, that vest in four equal amounts on each three-month anniversary of the grant date until all such shares are fully vested. The options have an exercise price of $7.25 and a contract life of 2 years. The fair value of the option award was estimated on the date of grant using the Black-Scholes option valuation model to be $164,516.

On July 29, 2011, the Compensation Committee granted performance options to acquire up to an aggregate of 1,332,000 shares of the Company’s common stock to certain officers and employees of the Company pursuant to the 2009 Plan. The performance stock options each have an exercise price of $8.32 per share, a contractual life of 6 years, and vest in three tranches of 25%, 35% and 40% on each of the three years ended December 31, 2012, 2013 and 2014, provided that the recipient has met certain performance criteria and the recipient continues to be an employee of, or service provider to, the Company or its subsidiaries at the time of the relevant vesting dates.

The fair value of the option award was estimated on the date of grant using the Black-Scholes option valuation model to be $6,643,504, of which $2,029,404 and $1,220,820 was recorded as compensation cost in the general and administrative expenses during the year ended December 31, 2012 and 2011, respectively. The valuation was based on the assumptions noted in the following table.

Expected volatility	77	%
Expected dividends	0	%
Expected term (in years)	5.15
Risk-free rate	2.60	%

During the years ended December 31, 2012, 2011 and 2010, there was $2,029,404, $1,405,116 and $1,710,272 compensation cost related to the 2009 plan recognized in general and administration expenses.

(2) 2003 Stock Incentive Plan

Effective May 7, 2003, the Company adopted and approved its 2003 Plan, which reserved 3,000,000 shares of common stock for issuance under the Plan. The Plan allows the Company to issue awards of incentive non-qualified stock options, stock appreciation rights, and stock bonuses to directors, officers, employees and consultants of the Company.

No stock appreciation rights have been issued under the 2003 Plan.

On October 15, 2008, an option to purchase 80,000 shares was granted to an employee that vests on the 12-month anniversary of the date of grant with an exercise price of $12.00 and a contractual life of 4 years.

A summary of option activity under the 2009 Plan and 2003 Plan as of December 31, 2012 and 2011 and movement during the years then ended is as follows:

	Options			Weighted average grant date fair value		Weighted average exercise price		Aggregate intrinsic value		Weighted average remaining contractual term (years)
				US$		US$		US$
Outstanding as of January 1, 2011		856,245			10.45		15.84		71,190		3.97
Granted		1,332,000			5.22		8.32				6.00
Exercised		—			—		—				—
Forfeited or expired		(742,245	)		11.08		15.75				0.19
Outstanding as of December 31, 2011		1,446,000			5.31		8.66		—		5.25
Granted		—			—		—				—
Exercised		—			—		—				—
Forfeited or expired		(440,000	)		5.36		9.44				—
Outstanding as of December 31, 2012		1,006,000			4.99		8.32		—		4.58
Exercisable as of December 31, 2012		251,500			4.99		8.32		—		4.58

(1) The intrinsic values of options at December 31, 2012 and December 31, 2011 were zero since the per share market values of the Company’s common stock of $6.6 and $2.51, respectively, were lower than the exercise price per share of the options.

A summary of the status of the Company’s non-vested options as of December 31, 2012 and 2011, and movements during the two years then ended is as follows:

	Options			Weighted average grant date fair value
				US$
Non-vested as of January 1, 2011		713,245			10.24
Granted		1,332,000			5.22
Vested		(63,000	)		1.96
Forfeited or expired		(620,245	)		10.66
Non-vested as of December 31, 2011		1,362,000			5.52
Granted		—			—
Vested		(251,500	)		4.99
Forfeited or expired		(356,000	)		6.16
Non-vested as of December 31, 2012		754,500			4.99

As of December 31, 2012, there was a total of $1,853,988 of unrecognized compensation cost related to non-vested share-based compensation granted under the 2009 Plans. The cost is expected to be recognized over 24 months. To the extent the actual forfeiture rate is different from the original estimate, actual share-based compensation cost related to these awards may be different from the expectation.

Warrants

As of December 31, 2011, the Company had 237,937 warrants outstanding with a weighted average remaining contractual life of 0.8 years and a weighted average exercise price of $14.5 per warrant. During the years ended December 31, 2012 and 2011, no warrants were exercised. The outstanding warrants expired on October 4, 2012.