NOTE 14 – STOCK-BASED COMPENSATION

Pursuant to the Company’s Amended and Restated 2007 Equity Incentive Plan, the aggregate number shares of the Company’s common stock available for grant of stock options and issuance is 4,341,989 shares.

The fair value of each option award below is estimated on the date of grant using the Black-Scholes option-pricing model. The risk free rate is based on the yield-to-maturity in continuous compounding of the US Government Bonds with the time-to-maturity similar to the expected tenor of the option granted, volatility is based on the annualized historical stock price volatility of the Company, and the expected life is based on the expected tenor, which has been taken into account of early exercise behavior of the option holder.

The Company issued 25,000 warrants on August 1, 2008 at a price of $4.80 per share as part of a consulting agreement with its investor relations firm. These options fully vested on August 1, 2009. The warrants were valued at $65,000, fair value, with assumed 162% volatility, a four-year expiration term, a risk free rate of 3% and no dividend yield. The value of the warrants will be expensed over one year, which is the term of the consulting agreement. For the year ended December 31, 2009, $48,616 was recognized as consulting expense.

In March 2009, the Company granted to 9 management staff (including 4 directors of the Company) options to purchase a total of 150,000 shares (25,000 for each of the executive directors, and 12,500 each for one non-executive independent director and 5 other management staff) of the Company’s common stock at an exercise price of $4.80 per share and the options vested immediately. The options were valued at $143,820 fair value, with assumed 174% volatility, a three-year expiration term, a risk free rate of 1.43% and no dividend yield. For the year ended December 31, 2009, $143,820 was recognized as general and administrative expenses.

In May 2009, the Company granted to a director options to purchase 12,500 shares of the Company’s common stock at an exercise price of $4.80 per share and the options vested immediately. The options were valued at $20,486 fair value, with assumed 170% volatility, a three-year expiration term, a risk free rate of 1.43% and no dividend yield. For the year ended December 31, 2009, $20,486 was recognized as general and administrative expenses.

In June 2009, the Company granted to a director options to purchase 25,000 shares of the Company’s common stock at an exercise price of $4.80 per share and the options vested immediately. The options were valued at $39,534 fair value, with assumed 167% volatility, a three-year expiration term, a risk free rate of 1.43% and no dividend yield. For the year ended December 31, 2009, $39,534 was recognized as general and administrative expenses.

In October 2009, the Company granted to 2 management staff options to purchase 37,500 shares of the Company’s common stock at an exercise price of $6.44 per share and the options vested immediately. The options were valued at $219,656 fair value, with assumed 161% volatility, a three-year expiration term, a risk free rate of 1.43% and no dividend yield. For the year ended December 31, 2009, $219,656 was recognized as general and administrative expenses.

In October 2009, the Company granted to an independent director options to purchase 12,500 shares of the Company’s common stock at an exercise price of $9.65 per share and the options vested immediately. The options were valued at $90,648 fair value, with assumed 160% volatility, a three-year expiration term, a risk free rate of 1.43% and no dividend yield. For the year ended December 31, 2009, $90,648 was recognized as general and administrative expenses.

In November 2009, the Company granted to an independent director options to purchase 12,500 shares of the Company’s common stock at an exercise price of $10.14 per share and the options vested immediately. The options were valued at $92,315 fair value, with assumed 152% volatility, a three-year expiration term, a risk free rate of 1.43% and no dividend yield. For the year ended December 31, 2009, $92,315 was recognized as general and administrative expenses.

In December 2009, the Company granted to an investment bank warrants to purchase 176,471 shares of the Company’s common stock at an exercise price of $10.2 per share and the warrants vested immediately. The warrants were valued at $1,367,156 fair value, with assumed 156% volatility, a three-year expiration term, a risk free rate of 1.43% and no dividend yield. For the year ended December 31, 2009, $1,367,156 was recognized as general and administrative expenses.

In February 2010, the Company granted to 8 management staff options to purchase 132,500 shares of the Company’s common stock at an exercise price of $8.25 per share and the options vested immediately. The options were valued at $995,539 fair value, with assumed 154% volatility, a three-year expiration term with expected tenor of 1.5 years, a risk free rate of 1.60% and no dividend yield. For the year ended December 31, 2010, $995,539 was recognized as general and administrative expenses.

In February 2010, the Company granted to the investor relations firm warrants to purchase 25,000 shares of the Company’s common stock at an exercise price of $12 per share and the warrants vested immediately. The warrants were valued at $193,428 fair value, with assumed 155% volatility, a four-year expiration term, a risk free rate of 1.60% and no dividend yield. For the year ended December 31, 2010, $193,428 was recognized as general and administrative expenses.

In November 2010, the Company granted to 2 independent directors options to purchase 25,000 shares of the Company’s common stock at an exercise price of $10.43 per share and the options vested immediately. The options were valued at $93,462 fair value, with assumed 76% volatility, a three-year expiration term with expected tenor of 1.5 years, a risk free rate of 0.30% and no dividend yield. For the year ended December 31, 2010, $93,462 was recognized as general and administrative expenses.

In February 2011, the Company granted to the investor relations firm a warrant to purchase 50,000 shares of the Company’s common stock at an exercise price of $12.6 per share and the warrants vested immediately. The warrant was valued at $452,000 fair value, with assumed 193.42% volatility, a five-year expiration term, a risk free rate of 2.30% and no dividend yield. For the year ended December 31, 2011, $452,000 was recognized as general and administrative expenses.

In early March 2011, the Company granted to an independent director an option to purchase 12,500 shares of the Company’s common stock at an exercise price of $9.16 per share and the options vested immediately. The options were valued at $35,000 fair value, with assumed 64.5% volatility, a three-year expiration term with expected tenor of 1.49 years, a risk free rate of 0.46% and no dividend yield. For the year ended December 31, 2011, $35,000 was recognized as general and administrative expenses.

In late March 2011, the Company granted to 3 executive officers options to purchase 1,200,000 shares of the Company’s common stock at an exercise price of $4.97 per share and the options are exercisable in equal installments over periods of two years. The options were valued at $4,317,000 fair value, with assumed 77.22% to 94.36% volatility, a four-year expiration term with expected tenors of 2 to 2.49 years, risk free rates of 0.81% to 1.05% and no dividend yield. For the year ended December 31, 2011, $1,945,000 was recognized as general and administrative expenses.

In late March 2011, the Company also granted to 18 management staff options to purchase 654,000 shares of the Company’s common stock at an exercise price of $4.97 per share and the options are exercisable in equal installments over periods of three years. The options were valued at $2,632,000 fair value, with assumed 77.22% to 118.84% volatility, a four-year expiration term with expected tenors of 2 to 3 years, risk free rates of 0.81% to 1.29% and no dividend yield. For the year ended December 31, 2011, $706,000 was recognized as general and administrative expenses.

In early May 2011, the Company granted to an independent director an option to purchase 12,500 shares of the Company’s common stock at an exercise price of $2.93 per share and the option vested immediately. The option was valued at $15,800 fair value, with assumed 79.91% volatility, a four-year expiration term with expected tenor of 2 years, a risk free rate of 0.57% and no dividend yield. For the year ended December 31, 2011, $15,800 was recognized as general and administrative expenses.

In late June 2011, the Company granted to an independent director an option to purchase 12,500 shares of the Company’s common stock at an exercise price of $3.10 per share and the option vested immediately. The option was valued at $15,200 fair value, with assumed 86.36% volatility, a three-year expiration term with expected tenor of 1.49 years, a risk free rate of 0.32% and no dividend yield. For the year ended December 31, 2011, $15,200 was recognized as general and administrative expenses.

In late September 2011, the Company and certain management staff and directors mutually agreed to cancel certain unexercised and all non-vested stock options previously granted for an aggregate of 1,181,000 shares of the Company’s common stock, having exercise prices between $4.97 to $8.25 per share, without consideration. In accordance with ASC 718-20-35-9, “Awards Classified as Equity — Cancellation and Replacement”, the Company accelerated the remaining expense on these cancelled awards that resulted in $4,298,000 recorded in general and administrative expense for the year ended December 31, 2011.

In November 2011, the Company granted to an independent director an option to purchase 12,500 shares of the Company’s common stock at an exercise price of $2.41 per share and the option vested immediately. The option was valued at $14,400 fair value, with assumed 94.7% volatility, a three-year expiration term with expected tenor of 1.5 years, a risk free rate of 0.16% and no dividend yield. For the year ended December 31, 2011, $14,400 was recognized as general and administrative expenses.

The following table summarizes all Company stock option transactions between January 1, 2009 and December 31, 2011.

	Number of Option			Number of Option			Number of Option			Range of
	and Warrants			and Warrants			and Warrants			Exercise Price per
	Outstanding			Non-vested			Vested			Common Share
Balance, January 1, 2009		325,000			212,500			112,500			$0.84 - $10.04
Granted during the year ended December 31, 2009		426,471			426,471			-			$4.80 - $10.20
Vested during the year ended December 31, 2009		-			(513,970	)		513,970			$4.80 - $10.20
Forfeited or expired during the year ended December 31, 2009		(250,000	)		(125,001	)		(124,999	)		$10.04
Balance, December 31, 2009		501,471			-			501,471			$0.84 - $10.20
Granted and vested during the year ended December 31, 2010		182,500			-			182,500			$8.25 - $12.00
Exercised during the year ended December 31, 2010		(225,000	)		-			(225,000	)		$1.44 - $8.20
Balance, December 31, 2010		458,971			-			458,971			$0.84 - $12.00
Granted during the year ended December 31, 2011		1,954,000			1,954,000			-			$2.41 - $12.60
Vested during the year ended December 31, 2011		-			(918,000	)		918,000			$2.41 - $12.60
Exercised during the year ended December 31, 2011		(12,500	)		-			(12,500	)		$0.84
Forfeited, canceled or expired during the year ended December 31, 2011		(1,256,000	)		(1,036,000	)		(220,000	)		$4.80 - $10.43
Balance, December 31, 2011		1,144,471			-			1,144,471			$2.41 - $12.60

Stock and Warrants Options Outstanding

Weighted Average

Outstanding

Remaining

Exercise Price of

at December 31,

Range of

Contractual Life

Options Currently

2011

Exercise Prices

(Years)

Outstanding

Exercisable and outstanding

1,144,471

2.41 - $12.60

2.91

6.30

The weighted average grant-date fair values as at December 31, 2011, 2010 and 2009 were $7.29, $8.83 and $6.84, respectively.

At December 31, 2011 and 2010, the aggregate intrinsic value of the stock options and warrants were $1,382,612 and $75,647, respectively.