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STOCK-BASED COMPENSATION PLAN | 12 Months Ended
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Dec. 31, 2014
Disclosure of Compensation Related Costs, Share-based Payments [Abstract] |
STOCK-BASED COMPENSATION PLAN | 18. STOCK-BASED COMPENSATION PLAN Options to Employees On August 4, 2008, the Company granted certain employees stock options under the Company’s 2007 Non-Statutory Stock Option Plan, which was later amended and restated in 2010, to acquire 3,000,000 shares of the Company’s common stock, par value $0.001, at $0.80 per share. The options vested over three (3) years and have a life of five (5) years. The Company’s 2007 Non-Statutory Stock Option Plan has expired. Based on the FV method under FASB ASC Topic 718, the FV of each stock option granted is estimated on the date of the grant using the Black-Scholes option pricing model (“BSOPM”). The BSOPM has assumptions for risk free interest rates, dividends, stock volatility and expected life of an option grant. The risk free interest rate is based upon market yields for United States Treasury debt securities at a maturity near the term remaining on the option. Dividend rates are based on the Company’s dividend history. The stock volatility factor is based on the historical volatility of the Company’s stock price. The expected life of an option grant is based on management’s estimate as no options have been exercised in the Plan to date. The FV of each option granted to employees is recognized as compensation expense over the vesting period of each stock option award. The FV of the options was calculated using the following assumptions, estimated life of five (5) years, volatility of 100%, risk free interest rate of 2.76%, and dividend yield of 0%. No estimate of forfeitures was made as the Company has a short history of granting options. The options were accounted for as a modification of the options cancelled on June 25, 2008. The grant date FV of options was $5.04 million. The options expired on August 3, 2013. On November 9 and 11, 2009, the Company and three option holders agreed to cancel 87,000 vested but unexercised shares and forfeit unvested options for 203,000 unvested shares. On November 11, 2009, the Company granted options to two other employees for 290,000 shares of the Company’s common stock at $2.35 per share. The options vested over three (3) years and have a life of five (5) years. The FV of the options was calculated using the following assumptions, estimated life of five (5) years, volatility of 100%, risk free interest rate of 3.84%, and dividend yield of 0%. The grant date FV of options was $518,513. The options expired on November 10, 2014. In July 2011, the Compensation Committee approved and provided the employees cashless exercise elections to the stock options granted by the Board of Directors of the Company (the “Board”) on August 4, 2008. On August 20, 2013, the Board further approved and provided the Employee Recipients (stock options granted to purchase shares of common stock of the Company in its resolutions on November 11, 2009 and August 13, 2010, as further discussed below) cashless exercise elections. The holder of the stock options may elect to receive shares equal to the value (as determined below) of his/her option (or the portion thereof being canceled) according to the following formula: X = Y (A-C) A
| Where | X = | the number of shares of Common Stock to be issued to the holder
|  | Y = | the number of shares of stock option or, if only a portion of the stock option is being exercised, the portion of the option being canceled
|  | A = | the Fair Market Value of one share of Common Stock as defined below
|  | C = | Stock Option Exercise Price
For purposes of the above calculation, the fair market value per share shall be the closing price quoted on the NASDAQ Global Market for the five (5) trading days prior to the date on which a written notice of such holder’s election to exercise his/her option has been received by the Company. During 2013, the Employee Recipients exercised 2,650,000 shares of stock options (granted on August 4, 2008) into 1,887,411 shares of the Company’s common stock. On August 13, 2010, the Company granted 2,200,000 options to acquire the Company’s common stock at $3.05 per share to 36 managerial and non-managerial employees as new equity awards pursuant to the Corporation’s Amended and Restated 2007 plan. According to the vesting terms, the options granted were divided into three tranches, (i) 1/3 (one third) of the total number of shares subject to the options shall vest and become exercisable if the Company meets its minimum revenue and earnings goals in the Company’s guidance for 2010 as delivered in its earnings releases and/or conference calls in the first quarter of 2010, such vesting to occur immediately upon completion of the annual audit confirming the financial results for 2010; and (ii) an additional 1/3 (one third) of the total number of shares subject to the options shall vest and become exercisable if the Company meets certain financial goals of 2011 which will be set out and decided by the Compensation Committee, such vesting to occur immediately upon Compensation Committee’s determination that the Company has met such goals for 2011; and (iii) the remaining 1/3 (one third) of the total number of shares subject to the options shall vest and become exercisable if the Company meets certain financial goals of 2012 which is set out and decided by the Compensation Committee, such vesting is to occur immediately upon Compensation Committee’s determination that the Company has met such goals for 2012. The options may only be exercised to the extent that such options have become vested and exercisable. The Company did not meet the financial goals of 2012 and 2011; accordingly, the second and third tranches (two thirds of the total number of 2,200,000 options) were forfeited. The options have a life of five (5) years. The FV of the options was calculated using the following assumptions; estimated life of five (5) years, volatility of 92%, risk free interest rate of 3.54%, and dividend yield of 0%. Each tranche of the options is deemed to be independent of the others. Therefore, the FV of the first tranche of options was expensed during 2011; the second and third tranche of options were forfeited due to the non-achievement of established financial benchmarks. The following table summarizes activity for employees in the Company’s Plan:
|  |  |  |  |  | Weighted |
|  |  |  |  |  | Average |
|  |  |  | Average |  | Remaining |
|  | Number of |  | Exercise |  | Contractual |
|  | Shares |  | Price per Share |  | Term in Years |
Outstanding at January 1, 2013 |  |  | 3,733,333 |  | $ | 1.36 |  |  | 1.09 |
Exercisable at January 1, 2013 |  |  | 3,733,333 |  |  | 1.36 |  |  | 1.09 |
Granted |  |  | - |  |  | - |  |  | - |
Exercised |  |  | 2,650,000 |  |  | 0.80 |  |  | - |
Forfeited |  |  | 60,000 |  |  | - |  |  | - |
Outstanding at December 31, 2013 |  |  | 1,023,333 |  | $ | 2.85 |  |  | 1.40 |
Exercisable at December 31, 2013 |  |  | 1,023,333 |  |  | 2.85 |  |  | 1.40 |
Granted |  |  | - |  |  | - |  |  | - |
Exercised |  |  | - |  |  | - |  |  | - |
Forfeited |  |  | 290,000 |  |  | - |  |  | - |
Outstanding at December 31, 2014 |  |  | 733,333 |  |  | 3.05 |  |  | 0.62 |
Exercisable at December 31, 2014 |  |  | 733,333 |  | $ | 3.05 |  |  | 0.62 |
0 and 2,650,000 (cashless exercise) shares of options were exercised during the years ended December 31, 2014 and 2013. The Company recorded $0 compensation expense for stock options to employees during the years ended December 31, 2014 and 2013, respectively. Options that were vested and exercisable at December 31, 2014 were 733,333 shares, weighted average exercise price of $3.05, no intrinsic value, and weighted-average remaining contractual term of 0.62 years. Options that were expected to vest at December 31, 2014 were 0 shares.
Options to Independent Directors On October 30, 2009, the Company granted stock options for 130,000 shares of the Company’s common stock, at $1.85 per share to three independent directors. The options vested and became exercisable on the six-month anniversary of the grant date with a life of five (5) years. The FV of the options was calculated using the following assumptions: estimated life of five (5) years, volatility of 100%, risk free interest rate of 3.54%, and dividend yield of 0%. The grant date FV of options was $183,000. The options expired on October 29, 2014. On January 20, 2010, the Company granted stock options for 40,000 shares of the Company’s common stock, at $4.68 per share to another independent director. The options vested and became exercisable on the six-month anniversary of the grant date with a life of five (5) years. The FV of the options was calculated using the following assumptions: estimated life of five (5) years, volatility of 100%, risk free interest rate of 3.54%, and dividend yield of 0%. The grant date FV of options was $142,000. On October 7, 2010, the Board appointed Mr. Yilin Ma and Mr. Chungui Shi as new members of the Board to fill the director vacancies until their successors have been duly elected and qualified. In connection with their appointment, the Board authorized the Company to provide Mr. Shi with (i) compensation of $2,000 per month and (ii) the grant of an option to purchase 40,000 shares of the Company’s common stock, at an exercise price equal to the closing price per share of the Company’s common stock on October 7, 2010. The Director Stock Options vested and became exercisable upon shareholder approval; the options had a life of five (5) years from the original grant date. The FV of these options was calculated using the following assumptions: estimated life of five (5) years, volatility of 87%, risk free interest rate of 3.54%, and dividend yield of 0%. The grant date FV of the Director Stock Options was $83,000. On October 31, 2013, the Company was notified by NASDAQ that the grant of options to Mr. Chungui Shi were subject to our shareholders’ approval pursuant to NASDAQ rule 5635(c); accordingly, on November 11, 2013, the Company and Mr. Shi entered into that certain First Amendment to the Non-Statutory Stock Option Agreement. Per the First Amendment, the parties agreed that the underlying Nonstatutory Stock Option Agreement would be subject to stockholder approval at the Company's 2014 Annual Meeting of Shareholders and that if shareholder approval is not obtained, the initial grant shall be deemed null and void and Mr. Shi shall not have a right to these shares, the stock options granted to Mr. Shi was approved in the Company’s 2014 Annual Meeting. The Director Stock Options did not include a cashless exercise right clause. On August 20, 2013, the Board approved and provided the Director Recipients cashless exercise elections to the Director Stock Options. The holder of the stock options may elect to receive shares equal to the value (as determined below) of his/her option (or the portion thereof being canceled) according to the following formula: X = Y (A-C) A
Where | X = | the number of shares of common stock to be issued to the holder
| Y = | the number of shares of stock option or, if only a portion of the stock option is being exercised, the portion of the option being canceled
| A = | the Fair Market Value of one share of common stock as defined below
| C = | Stock Option Exercise Price
For purposes of the above calculation, the fair market value per share shall be the closing price quoted on the NASDAQ Global Market for the five (5) trading days prior to the date on which a written notice of such holder’s election to exercise his/her option has been received by the Company. During 2013, one of the Company’s directors exercised 10,000 shares of stock options into 5,261 shares of the Company’s common stock. During the year ended December 31, 2014, two of the Company’s directors exercised 60,000 shares (50,000 and 10,000 shares respectively) of stock options into 36,124 shares (30,575 and 5,549 shares respectively) of the Company’s common stock. The following table summarizes option activity with respect to the independent directors:
|  |  |  |  |  |  | Weighted |
|  |  |  |  |  |  | Average |
|  |  |  |  | Average |  | Remaining |
|  | Number of |  | Exercise |  | Contractual |
|  | Shares |  | Price per Share |  | Term in Years |
Outstanding at January 1, 2013 |  |  | 210,000 |  | $ | 2.60 |  |  | 2.05 |
Exercisable at January 1, 2013 |  |  | 210,000 |  |  | 2.60 |  |  | 2.05 |
Granted |  |  | - |  |  | - |  |  | - |
Exercised |  |  | 10,000 |  |  | 1.85 |  |  | - |
Forfeited |  |  | - |  |  | - |  |  | - |
Outstanding at December 31, 2013 |  |  | 200,000 |  |  | 2.64 |  |  | 1.05 |
Exercisable at December 31, 2013 |  |  | 160,000 |  |  | 2.64 |  |  | 0.74 |
Granted |  |  | - |  |  | - |  |  | - |
Exercised |  |  | 60,000 |  |  | 1.85 |  |  | - |
Forfeited |  |  | 60,000 |  |  | - |  |  | - |
Outstanding at December 31, 2014 |  |  | 80,000 |  |  | 3.83 |  |  | 0.31 |
Exercisable at December 31, 2014 |  |  | 80,000 |  | $ | 3.83 |  |  | 0.31 |
60,000 and 10,000 (both were cashless exercise) shares of options were exercised during the years ended December 31, 2014 and 2013. Options that were vested and exercisable at December 31, 2014 were 80,000 shares, weighted average exercise price of $3.83, no intrinsic value, and weighted-average remaining contractual term of 0.31 years. Shares issued to a consulting firm On October 16, 2013, the Company entered a one-year financing consulting service agreement with a consulting firm. The Company will pay 75,000 restricted Rule 144 shares for the service. The Board approved such share issuance on March 27, 2014. The fair value of the 75,000 shares was $187,500 at agreement date, and was amortized over the term of the service. Shares issued to CEO On August 27, 2014, the Company entered into a Share Purchase Agreement with Mr. Guohua Ku, a Chinese citizen, major shareholder, Chairman and Chief Executive Officer of this Company. Pursuant to the Agreement, the Company issued to Mr. Ku, 13,829,074 shares of common stock of the Company on September 5, 2014. The purchase price per share for the Shares shall be the average closing price quoted on the NASDAQ Global Market for the common stock of the Company for 15 trading days prior to the effective date of the Agreement, which was $1.37 per share. The Company received payments in two installments of $12 million and $6.91 million on September 5, 2014 and September 12, 2014, respectively, in equivalent of RMB 74.05 million and RMB 42.85 million, respectively, using the middle exchange rate between USD and RMB published by the People’s Bank of China on the effective date of the agreement pursuant to its terms .These shares were recorded using the FV of $1.49 per share. The Company shall file a registration statement for the registration of the Shares for their resale by Mr. Ku within 180 days from the effective date of this Agreement.

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- Definition The entire disclosure for compensation-related costs for equity-based compensation, which may include disclosure of policies, compensation plan details, allocation of equity compensation, incentive distributions, equity-based arrangements to obtain goods and services, deferred compensation arrangements, employee stock ownership plan details and employee stock purchase plan details. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 718 -SubTopic 10 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6415400&loc=d3e5047-113901 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 718 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=6415400&loc=d3e5070-113901 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 505 -SubTopic 50 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6406099&loc=d3e25284-112666 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 718 -SubTopic 40 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6418621&loc=d3e17540-113929 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 718 -SubTopic 10 -Section 50 -Paragraph 4 -URI http://asc.fasb.org/extlink&oid=6415400&loc=d3e5444-113901 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Staff Accounting Bulletin (SAB) -Number Topic 14 + Details
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