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EQUITY
 12 Months Ended
Dec. 31, 2011
Stockholders Equity Note [Abstract]  
Stockholders' Equity Note Disclosure [Text Block]
12. EQUITY

 

Common Shares

At December 31, 2008, the Company’s Memorandum and Articles of Association authorized share capital of US$50,000 comprised of 4,500,000 common shares and 500,000 preferred shares (120,000 shares of Series A preferred shares and 380,000 shares of Series B preferred shares) with US$0.01 par value.

 

On October 31, 2009, the board of directors approved a 3.6614-for-1 stock split of the Company’s common shares. Accordingly, all common share and per share information in the accompanying consolidated financial statements give retroactive effect of the stock split. Prior to the stock split, there were 516,722 common shares issued and outstanding at December 31, 2008. The authorized share capital remains at US$50,000.

 

On March 22, 2010, the founders of the Company placed an aggregate of 600,000 common shares of the Company into escrow. Such shares equaled 40% of the maximum number of shares which were sold in the initial public offering (“IPO”). The shares remained in escrow until the Company filed its Form 10-K with the Securities and Exchange Commission for the year ended December 31, 2010. The shares in escrow (Make-Good Shares) were accounted for as an element in the IPO and the Company did not recognize any compensation expense upon the return of such Make-Good Shares to the holders. To the extent the Company’s earnings per share for the year ended December 31, 2010 were less than $0.80, the Company would have redeemed the Make Good Shares, pro rata. Alternatively, if the closing price of the common shares was equal to at least 2.5 times of the IPO offering price for five trading days in any ten trading day period, then the Make-Good Shares would be returned to the founders. At December 31, 2010, the earnings per share of the Company were $1.09. Thus, the Company did not need to redeem any of the Make-Good Shares. During the period from the IPO date to December 31, 2010, there was no such period in which the closing price of the common shares was higher than 2.5 times of the IPO offering. The shares were returned to the founders on May 5, 2011 and are included as part of the calculation of the basic and diluted earnings per share in the accompanying consolidated financial statements.

 

On March 8, 2011, Dehaier issued 10,000 unregistered common shares to an investment relationship firm. The fair value of the shares on the issuance date based on the closing price was $59,300.

 

On November 16, 2011, Dehaier issued 50,000 unregistered common shares for capital market relationship activities. The fair value of the shares on the issuance date based on the closing price was $84,250.

 

Convertible Preferred Shares

 

In October 2003, the Company issued 120,000 Series A convertible preferred shares (“Series A Preferred Shares”) for total proceeds of $1,200,000.

 

During 2007, the Company issued in aggregate 182,635 Series B convertible preferred shares (“Series B Preferred Shares”) for total proceeds of $2,000,000. On October 31, 2009, each share of preferred stock was converted into common shares on a 1-to-1 basis.

Series A Preferred Shares and Series B Preferred Shares were collectively referred to as the “Preferred Shares”.

 

Preferred Shares had priority over the common stock “Common Shares”. Certain rights, preferences and privileges of the Preferred Shares are listed below:

 

The holders of Preferred Shares were entitled to receive noncumulative dividends, when and if declared by the board of directors. Dividends are not mandatory and shall not accrue.

 

Preferred Shares Series A and B had a liquidation preference of $10 and $10.95074 per share, respectively.

 

The holders of Preferred Shares were entitled to one vote for each share of common stock the Preferred Shares could be converted to.

 

Preferred Shares were non-redeemable.

 

On October 31, 2009 all the Preferred Shares in authorized capital were re-designated as common shares.

Statutory Surplus Reserves

 

A PRC company is required to make appropriations to statutory surplus reserve, based on after-tax net income determined in accordance with generally accepted accounting principles of the PRC (“PRC GAAP”). Appropriations to the statutory surplus reserve is required to be at least 10% of the after tax net income determined in accordance with PRC GAAP until the reserve is equal to 50% of the entity’s’ registered capital. 

 

The statutory surplus reserve fund is non-distributable other than during liquidation and can be used to fund previous years’ losses, if any, and may be utilized for business expansion or converted into share capital by issuing new shares to existing shareholders in proportion to their shareholding or by increasing the par value of shares currently held by them, provided that the remaining statutory surplus reserve balance after such issue is not less than 25% of the registered capital.

 

Since Dehaier is a British Virgin Islands’ company, it will not be subject to the statutory surplus reserve provisions. BDL is a joint-venture company and the statutory surplus reserve provisions will be determined by its board of directors. As of December 31, 2010, BDL’s board of directors has not yet made such determination. Therefore, no amount was allocated to the statutory surplus reserve account.

 

BTL appropriated 10% of its net profits as statutory surplus reserve, which is included as part of the non-controlling interest in the equity section. For the years ended December 31, 2011 and 2010 statutory surplus reserve activity was as follows:

 

    December  31,  
    2011
US$		     2010
US$		  
             
Balance – beginning of year     72,226       70,086  
Addition to statutory reserves     22,431       2,140  
Balance –end of year     744,693       72,226  

 

Stock Option Plan

 

Under the employee stock option plan, the Company’s stock options expire five years from the date of grant. On December 29, 2011, the Company entered into five-year agreements with its employees and directors. In connection with their services, the Company issued an aggregate of 450,000 options to acquire the Company’s common shares at an exercise price of $1.45 per share. The options vest in equal annual installments over the five years of the agreements. As of December 29, 2011, all of the 450,000 options have not been fully vested.

 

The Company valued the stock options using the Black-Scholes model with the following assumptions:

 

    Expected
Terms
(years)		     Expected
Volatility		     Dividend
Yield		     Risk Free
Interest Rate		     Grant Date
Fair Value		  
Employees     5       126 %     0 %     0.83 %     1.22  
Directors and officers     5       126 %     0 %     0.83 %     1.22  

 

The following is a summary of the option activity:

 

Stock options   Shares     Weighted Average
Exercise Price		     Aggregate
Intrinsic Value		  
Outstanding as of December 31, 2010     -                  
Granted     450,000                  
Forfeited     -                  
Exercised     -                  
Outstanding as of December 31, 2011     450,000     $ 1.45     $ -  

 

Following is a summary of the status of options outstanding and exercisable at December 31, 2011:

 

 Outstanding options   Exercisable options
  Average
Exercise
price		     Number     Average remaining
contractual life
(years)		     Average
Exercise
price		     Number     Average remaining
contractual life
(years)
$   1.45       450,000       5     $ 1.45       90,000     5

 

For the years ended December 31, 2011 and 2010, the Company recognized $903 and $0, respectively, as compensation expenses under its stock option plan.