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.

2015 Options Plan – The Company granted options to purchase 400,000 ordinary shares to its employees and non-employee director on January 31, 2015. The options have an excise price of $1.65, which was equal to the share price of the Company’s ordinary shares at January 31, 2015, and will vest equally over a period of three years, with the one third vesting on January 31, 2016. The options expire ten years after the date of grant, on January 31, 2025.

The following is a summary of the stock options activity:

			Weighted Average Exercise Price Per
Stock Options	Shares		Share
Outstanding as of June 30, 2014		415,600	$	4.37
Granted		400,000		1.65
Forfeited		-		-
Exercised		-		-
Outstanding as of June 30, 2015		815,600	$	3.04

The following is a summary of the status of options outstanding and exercisable at June 30, 2015:

Outstanding Options				Exercisable Options
			Average				Average
			Remaining				Remaining
Average Exercise			Contractual	Average Exercise			Contractual
Price		Number	life (Years)	Price		Number	life (Years)

$	6.00	193,000	4.08	$	6.00	193,000	4.08

$	2.96	222,600	6.74	$	2.96	74,200	6.74

$	1.65	400,000	9.60		-	-	-

		815,600

Restricted Shares

For the year ended June 30, 2015, the Company has granted restricted shares of common stock to senior management and consultants as follows:

On July 19, 2014, the Company granted 50,000 restricted shares to a non-affiliate as compensation for certain consulting service. The fair value of the restricted shares was $190,000 based on the closing stock price $3.8 at July 18, 2014. On January 29, 2015, 10,000 of those restricted shares were canceled based on the agreement with the consultant.

On July 19, 2014, the Company decided to cancel 40,625 restricted shares, which was issued to Expert Asia Investment Ltd. on May 8, 2014, as the services were not provided pursuant to the agreement it had with the Company.

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 vest over three years with one third of the shares vesting every year from the grant date. The first one third was vested on December 13, 2014 and are now non-restricted.

On January 31, 2015, the Company granted 150,000 restricted shares to Mr. Yin Shenping and 150,000 restricted shares to Mr. Chen Guangqiang at an aggregate value of ¥3,038,558($495,000), based on the stock closing price of $1.65 at January 31, 2015. These restricted shares will vest over three years with one third of the shares vesting every year from the grant date.

On February 2, 2015, the Company issued 24,000 restricted shares to Maxim Group LLC (“Maxim”) for certain consulting service. The fair value of the restricted shares was $43,440 based on the closing stock price $1.81 at February 2, 2015.

On April 8, 2015, the Company granted 40,000 restricted shares to a non-affiliate as compensation for certain consulting service. The fair value of the restricted shares was $62,400 based on the closing stock price $1.56 at April 8, 2015.

The Share-based compensation expense recorded for stock options granted were ¥1,657,479 and ¥1,294,629 ($211,204) for the years ended June 30, 2014 and 2015, respectively. The total unrecognized share-based compensation expense for stock options as of June 30, 2015 was approximately ¥5.0 million ($0.8 million), which is expected to be recognized over a weighted average period of approximately 2.33 years.

The Share-based compensation expense recorded for restricted shares granted were ¥771,549 and ¥1,828,790 ($298,344) for the years ended June 30, 2014 and 2015, respectively. The total unrecognized share-based compensation expense for restricted shares granted as of June 30, 2015 was approximately ¥4.6 million ($0.8 million), which is expected to be recognized over a weighted average period of approximately 2.09 years.

Following is a summary of the restricted stock grants:

Restricted stock grants		Shares

Non-vested as of June 30, 2014		230,362

Granted		414,000

Non-vested adjustment		40,625

Cancelled		(50,625)

Vested		(180,787)

Non-vested as of June 30, 2015		453,575