10. Share-based payments

Share-based compensation to employees

Effective on January 1, 2008, the board of directors and shareholders of the SearchMedia International approved and adopted the 2008 Share Inventive Plan (the “Share Incentive Plan”) which provides for the granting of up to 1,796,492 share options and restricted shares to the eligible employees to subscribe for ordinary shares of SearchMedia International. The granted stock options and restricted shares were subsequently converted into SearchMedia Holdings’ stock options and restricted shares on October 30, 2009 pursuant to the Share Exchange Agreements.

In August 2010, subject to shareholder approval which was received in September of 2011, the Board approved an increase of the number of authorized shares to be awarded under the Share Incentive Plan from 1,796,492 to 3,000,000 shares which may be granted to designated employees, directors and consultants of the Company. On December 14, 2012, shareholders approved an increase in the 2008 share incentive plan to 4,500,000 shares.

(a) Share options

Details of stock options activity during the years ended December 31, 2010, 2011 and 2012 were as follows:


	Number of options			Weighted average exercise price per share		Weighted average remaining contractual term		Aggregate fair value
Balance as of January 1, 2010		423,797			3.19				1,253
Granted		770,000			5.47				1,924
Exercised		(86,673	)		0.01				(345	)
Forfeited		(102,263	)		2.69				(316	)
Balance as of December 31, 2010		1,004,861			2.13				1,253
Granted		120,000			1.74				123
Exercised		(77,387	)		0.01				(307	)
Forfeited		(28,141	)		3.81				(78	)
Balance as of December 31, 2011		1,019,333			5.32		8.0 years		1,880
Granted		1,300,000			1.37				799
Forfeited		(683,810	)		4.04				(968	)
Balance as of December 31, 2012		1,635,523			2.36		8.6 years		1,735
Options exercisable at December 31, 2012		387,188			5.47		6.8 years		738

The Company determined the estimated grant-date fair value of share options based on the Binomial Tree option-pricing model using the following assumptions:


	2010	2011	2012
Risk-free rate of return	2.74%-4.14%	2.35%	1.46%-2.30%
Weighted average expected option life	10 years	10 years	10 years
Expected volatility rate	64.00%	102.20%	96.90%-102.00%
Dividend yield	0 %	0 %	0%

The expected volatility in the table above was based on the actual volatility of the Company’s ordinary shares.

Because the Company’s share options have certain characteristics that are significantly different from traded options, and because changes in the subjective assumptions can materially affect the estimated value, in management’s opinion, the existing valuation model may not provide an accurate measure of the fair value of the Company’s share options. Although the fair value of share options issued to employees is determined in accordance with ASC Topic 718, “Compensation—Stock Compensation”, using an option-pricing model, that value may not be indicative of the fair value observed in a willing buyer/willing seller market transaction.

The Company has accounted for these options issued to employees in accordance with ASC Topic 718, “Compensation—Stock Compensation”, by measuring compensation cost based on the grant-date fair value and recognizing the cost over the period during which an employee is required to provide service in exchange for the award.

During first quarter of 2010, 545,000 options, at exercise prices ranging from $6.05 to $7.4, to purchase the Company’s ordinary shares were granted to senior executives of the Company with the options vesting one-third annually over a three year period. A total of 225,000 options, at exercise price of $7.14, were also granted to Board members with vesting one year from the date of grant. The fair value of these options at grant date was $1,924.

On August 20, 2010, one of the senior executives of the Company agreed to cancel 225,000 options granted in the first quarter of 2010 and, upon cancellation, the senior executive was issued an option to purchase 225,000 shares of common stock at exercise price of $2.62, which vest one-third annually on the anniversary of the date of grant. The fair value of these options at grant date was $216.

On September 1, 2011, 120,000 options, at exercise prices at $1.74, to purchase the Company’s ordinary shares of the Company were granted to a senior executive of the Company with the options vesting half annually over a two year period. The fair value of these options at grant date was $123. The options were forfeited on the senior executive’s resignation.

On February 8, 2012, 300,000 options, at exercise price at $1.06, to purchase the Company’s ordinary shares of the Company were granted to certain senior executives of the Company with the options vesting over one year. The fair value of these options at grant date was $182.

On February 8, 2012, 50,000 options, at exercise price at $1.06, to purchase the Company’s ordinary shares of the Company were granted to a senior management of the Company with the options vesting annually over a three-year period. The fair value of these options at grant date was $35.

On February 13, 2012, 400,000 options, at exercise price at $1.1, to purchase the Company’s ordinary shares of the Company were granted to a senior executive of the Company with the options vesting annually over a three-year period. The fair value of these options at grant date was $286.

On March 21, 2012, 25,000 options, at exercise price at $1.55, to purchase the Company’s ordinary shares of the Company were granted to a senior executive of the Company with the options vested on February 24, 2013. The fair value of these options at grant date was $22.

On March 27, 2012, 100,000 options, at exercise price at $1.65, to purchase the Company’s ordinary shares of the Company were granted to a senior executive of the Company with the options vesting annually over a three-year period. The fair value of these options at grant date was $108. On March 27, 2012, the same senior executive cancelled 250,000 options, at exercise price at $6.09, to purchase the Company’s ordinary shares of the Company, which were granted on February 1, 2010.

On May 23, 2012, 150,000 options, at exercise price at $1.69, to purchase the Company’s ordinary shares of the Company were granted to a senior executive of the Company with the options vesting annually over a three-year period. The fair value of these options at grant date was $165. The options have been forfeited on his resignation.

On October 17, 2012, 150,000 options, at exercise price at $1.57, to purchase the Company’s ordinary shares of the Company were granted to a senior executive of the Company with the options vesting annually over a three-year period. The fair value of these options at grant date was $150.

On November 15, 2012, 125,000 options, at exercise price at $1.05, to purchase the Company’s ordinary shares of the Company were granted to a senior executive of the Company with the options vesting annually over a three-year period. The fair value of these options at grant date was $83. The options have been forfeited on the senior executive’s resignation.

The amount of compensation cost recognized for these share options was $1,680 for the year ended December 31, 2010, of which $291 and $1,389 was allocated to sales and marketing expenses and general and administrative expenses, respectively. As of December 31, 2010, unrecognized share-based compensation cost in respect of granted share options amounted to $906.

The amount of compensation cost recognized for these share options was $662 for the year ended December 31, 2011, of which $123 and $539 was allocated to sales and marketing expenses and general and administrative expenses, respectively. As of December 31, 2011, unrecognized share-based compensation cost in respect of granted share options amounted to $308.

The amount of compensation cost recognized for these share options was $473 for the year ended December 31, 2012, of which $116 and $357 was allocated to sales and marketing expenses and general and administrative expenses, respectively. As of December 31, 2012, unrecognized share-based compensation cost in respect of granted share options amounted to $359.

(b) Restricted share

Details of restricted share activity during the years ended December 31, 2010, 2011 and 2012 were as follows:


	Number of restricted share Granted			Grant-date fair value		Weighted average remaining contractual term
Balance as of January 1, 2010		463,779
Granted		100,000			605
Exercised		(5,910	)
Forfeitures		(204,604	)
Balance as of December 31, 2010		353,265
Granted		—			—
Exercised		(1,069	)
Forfeitures		(4,334	)
Balance as of December 31, 2011		347,862					7.6 years
Granted		181,087			224
Exercised		(56,087	)
Forfeitures		(327,601	)
Balance as of December 31, 2012		145,261			200		9.45 years
Units vested as of December 31, 2012		16,209			55		6.8 years

The Group recognized compensation cost (included in general and administrative expenses in the consolidated statements of operations) for these restricted share units of $719, $232 and $187 for the years ended December 31, 2010, 2011 and 2012, respectively. The fair value of the restricted share was estimated using the Binomial Tree option-pricing model. The assumptions used in estimating the fair value of the restricted share are the same as those related to valuation of share options.

As of December 31, 2012, unrecognized share-based compensation cost in respect of granted restricted share amounted to $0.

Share-based payment to nonemployees

On December 31, 2012, Tiger Media Inc. transferred 100% equity of SearchMedia International Limited to a third party by granting an option to acquire 650,000 shares of Tiger Media at $1.25 per share with the valid term of 5 years, which can be exercised immediately. Our accounts for the share-based payment transactions with nonemployees are at the fair value of the equity instruments issued in accordance with ASC Topic 505, “Equity – Equity-Based Payments to Non-Employees”.

We determined the estimated grant-date fair value of share options based on the Binomial Tree option-pricing model using the assumptions – risk-free rate of return of 0.70%, option life of 5 years, expected volatility rate of 97.50% and dividend yield of 0%. The fair value of the share-based payment to nonemployees amounts to $421.