NOTE 15. STOCK-BASED COMPENSATION

Stock-Based Awards Plan

2009 Options Plan - The Company granted options to purchase 293,000 ordinary shares under the Stock Incentive 2009 Plan to its employees and non-employee directors on July 29, 2009. The options have an excise price of $6.00, equal to the IPO price of the Company’s ordinary shares, and will vest over a period of five years, with the first 20% vesting on July 29, 2010. The options expire ten years after the date of grant, on July 29, 2019. The fair value was estimated on July 29, 2009 using the Binomial Lattice valuation model, with the following weighted-average assumptions:

Stock price at grant date	$	6.00
Exercise price (per share)	$	6.00
Risk free rate of interest***		4.6118	%
Dividend yield		0.0	%
Life of option (years)**		10
Volatility*		78	%
Forfeiture rate****		0	%

* Volatility is projected using the performance of PHLX Oil Service Sector index.

** The life of options represents the period the option is expected to be outstanding.

*** The risk-free interest rate is based on the Chinese international bond denominated in U.S. dollar, with a maturity that approximates the life of the option.

**** Forfeiture rate is the estimated percentage of options forfeited by employees by leaving or being terminated before vesting.

The Company recognizes compensation cost for awards with graded vesting on a straight-line basis over the requisite service period for the entire award. The grant date fair value of the options was ¥30.17 ($4.42) per share.

2012 Options Plan– The Company granted options to purchase 415,000 ordinary shares to its employees and non-employee director on March 26, 2012. The options have an excise price of $2.96, which was equal to the share price of the Company’s ordinary shares at March 26, 2012, and will vest over a period of five years, with the first 20% vesting on March 26, 2013. The options expire ten years after the date of grant, on March 26, 2022.

The following is a summary of the stock options activity:

Stock Options	Shares	Weighted Average Exercise Price Per Share
Outstanding as of July 1, 2013	608,000	$	3.93

Granted	-		-

Forfeited	(44,000)		(3.93)

Exercised	-		-

Outstanding as of December 31, 2013	564,000	$	3.93

The following is a summary of the status of options outstanding and exercisable at December 31, 2013:

	Outstanding Options				Exercisable Options
Average Exercise Price		Number	Average Remaining Contractual life (Years)	Average Exercise Price		Number	Average Remaining Contractual life (Years)
$	6.00	193,000	5.58	$	6.00	154,400	5.58
$	2.96	371,000	8.24	$	2.96	74,200	8.24

For the six months ended December 31, 2013, the Company has granted restricted shares of common stock to senior management and consultants as follow:

On October 31, 2013, the Company issued 30,000 restricted shares to a consulting firm for consulting services. The total value amounted to ¥407,972 ($66,420), based on the stock closing price of $2.21 at September 30, 2013.

On December 13, 2013, the Company granted 95,181 restricted shares to Mr. Yin Shenping and 135,181 restricted shares to Mr. Chen Guangqiang at an aggregate value of ¥4,207,496 ($688,782), based on the stock closing price of $2.99 at December 13, 2013. These restricted shares will be vested over three years with one third of the shares vesting every year from the grant date. Share-based compensation expense recorded for restricted shares granted were ¥66,229($10,842) for the three and six months ended December 31, 2013. Total unrecognized share-based compensation expense for these shares as of December 31, 2013 was approximately ¥4.1 million ($0.7 million), which are expected to be recognized over a weighted average period of approximately 2.95 years.

The Share-based compensation expense recorded for stock options granted were ¥452,348 and ¥414,326 ($67,767) for the three months ended December 31, 2012 and 2013, respectively. The total share-based compensation expense recorded for stock options granted were ¥907,153 and ¥895,509 ($146,555) for the six months ended December 31, 2012 and 2013, respectively. The total unrecognized share-based compensation expense for stock options as of December 31, 2013 was approximately ¥3.1 million ($0.5 million), which is expected to be recognized over a weighted average period of approximately 2.73 years.

Following is a summary of the restricted stock grants:

Restricted stock grants		Shares

Nonvested as of June 30, 2013		-

Granted		260,362

Forfeited		-

Vested		(30,000)

Nonvested as of December 31, 2013		230,362