OPTION PLAN AND WARRANTS

12 Months Ended

Oct. 31, 2011

Disclosure Of Compensation Related Costs, Share-Based Payments [Abstract]

Shareholders' Equity and Share-based Payments [Text Block]

19.  OPTION PLAN AND WARRANTS 

Share-based compensation amounted to $134,865 and $31,462 in the years ended October 31, 2011 and 2010, respectively.

(1)  2003 Omnibus Plan

On February 28, 2003, our board of directors approved the Renhuang Pharmaceuticals, Inc. 2003 Omnibus Securities Plan (the “2003 Plan”), which was approved by our shareholders on April 11, 2003. The 2003 Plan offers selected employees, directors, and consultants an opportunity to acquire our common stock, and serves to encourage such persons to remain employed by us and to attract new employees. The 2003 Plan allows for the award of stock and options, up to 25,000 (after giving effect to the 1-for-30 reverse stock split in 2006) shares of our common stock. On May 1, of each year, the number of shares in the 2003 Securities Plan is automatically adjusted to an amount equal to ten percent of our outstanding stock on October 31, of the immediately preceding year. As of October 31, 2010, the number of shares of common stock outstanding was 37,239,536 making 3,723,954 shares of common stock subject to the 2003 Plan.

1)  On April 13, 2010, an option to purchase 70,000 shares was granted under the 2003 Plan to an independent director that vests on a quarterly basis beginning three months from the date of grant, conditioned upon continued service on such quarterly dates, and has a contractual life of 3 years.  The fair value of the option award is estimated on the date of grant using the Black-Scholes option valuation model to be $171,397, of which $57,131 and $31,462 were recorded as compensation expenses for the year ended October 31, 2011 and 2010, respectively.  The valuation was based on the assumptions noted in the following table.  

Expected volatility	227.9	%
Expected dividends	0	%
Expected term (in years)	3 years
Risk-free rate	1.65	%

The risk-free interest rate is based on the U.S. Treasury yield curve in effect for the expected term of the option at the time of grant.  The dividend yield on our common stock is assumed to be zero since we do not pay dividends and have no current plans to pay them in the future.  The market price volatility of our common stock was based on historical volatility since April 13, 2009.  Our methodology is consistent with prior period volatility assumptions.  The expected life of the options is based upon our anticipated expectations of exercise behavior since no options have been exercised in the past to provide relevant historical data.

b)  On December 14, 2010, we appointed Mr. Weiqiu Dong as our chief financial officer. Base on the employment agreement, Mr. Dong received, on December 14, 2010, an option to purchase 200,000 shares of the Company's common stock under the 2003 Omnibus Plan. The option vests 60,000 shares on the first anniversary of the date of grant and 70,000 shares on each of the second and third anniversaries of the date of grant. The Option is conditioned upon continued employment on such date, and has a contractual life of 3 years.    

The fair value of the option award is estimated on the date of grant using the Black-Scholes option valuation model to be $259,251, of which $76,032 was recorded as compensation expenses for the year ended October 31, 2011 and $0 was recorded for the year ended October 31, 2010.  The valuation was based on the assumptions noted in the following table.

Expected volatility	96.46	%
Expected dividends	0	%
Expected term (in years)	3 years
Risk-free rate	1.06	%

The risk-free interest rate is based on the U.S. Treasury yield curve in effect for the expected term of the option at the time of grant.  The dividend yield on our common stock is assumed to be zero since we do not pay dividends and have no current plans to pay them in the future.  The market price volatility of our common stock was based on historical volatility since December 13, 2009.  Our methodology is consistent with prior period volatility assumptions.  The expected life of the options is based upon our anticipated expectations of exercise behavior since no options have been exercised in the past to provide relevant historical data.

c)  On October 15, 2011, we entered into an independent director agreement with Mr. Pan, who became our director on October 15, 2011. The agreement provides that Mr. Pan, the Chair of our Audit Committee, will receive (i) a fee of $2,500 per month, (ii) options to purchase 50,000 shares of common stock under the 2003 Plan, at an exercise price of $0.80 per share, which is equal to the closing price of the Company’s common stock on October 15, 2011, subject to vesting on a quarterly basis (4,166 shares of option to vest on the first 11 quarter anniversaries of the grant and 4,174 shares of option to vest on the 12th quarter anniversary of the grant with the initial 4,166 shares of option vesting to commence on January 15, 2012), and with all vesting conditional upon continued service as a director of the Company as of each such anniversary; and (iii) a reimbursement of out-of pocket expenses incidental to his services on the Board. The agreement expires on the earlier of (i) the date Mr. Pan ceases to be a member of the board, or (ii) the date of termination of the Agreement.   

The fair value of the option award is estimated on the date of grant using the Black-Scholes option valuation model to be $34,042, of which $2,837 was recorded as compensation expenses for the year ended October 31, 2011 and $0 was recorded for the year ended October 31, 2010.  The valuation was based on the assumptions noted in the following table. 

Expected volatility	127.76	%
Expected dividends	0	%
Expected term (in years)	3 years
Risk-free rate	1.12	%

The risk-free interest rate is based on the U.S. Treasury yield curve in effect for the expected term of the option at the time of grant.  The dividend yield on our common stock is assumed to be zero since we do not pay dividends and have no current plans to pay them in the future.  The market price volatility of our common stock was based on historical volatility since October 14, 2010.  Our methodology is consistent with prior period volatility assumptions.  The expected life of the options is based upon our anticipated expectations of exercise behavior since no options have been exercised in the past to provide relevant historical data.

(2)  2007 Non-Qualified Company Stock Grant and Option Plan

On March 19, 2007, our board of directors approved the 2007 Non-Qualified Company Stock Grant and Option Plan (the “2007 Plan”).   The 2007 Plan is intended to serve as an incentive to and to encourage stock ownership by our  directors, officers, and employees, and certain persons rendering service to us, so that such persons may acquire or increase their proprietary interest in our success, and to encourage them to remain in our service.  Under the 2007, up to 200,000 shares of our common stock may be subject to options.

On January 13, 2010, an option to purchase 50,000 shares was granted under the 2007 Plan to an employee that vests on the 12-month anniversary of the date of grant, conditioned upon continued employment on such date, and has a contractual life of 3 years.  The fair value of the option award is estimated on the date of grant using the Black-Scholes option valuation model to be $47,527.  The valuation was based on the assumptions noted in the following table. The option was forfeited at departure of the employee on August 6, 2010.

Expected volatility	236.5	%
Expected dividends	0	%
Expected term (in years)	3 years
Risk-free rate	1.5	%

The risk-free interest rate is based on the U.S. Treasury yield curve in effect for the expected term of the option at the time of grant.  The dividend yield on our common stock is assumed to be zero since we do not pay dividends and have no current plans to pay them in the future.  The market price volatility of our common stock was based on historical volatility since January 13, 2009.  Our methodology is consistent with prior period volatility assumptions.  The expected life of the options is based upon our anticipated expectations of exercise behavior since no options have been exercised in the past to provide relevant historical data.

A summary of option activity under the Company’s option plan as of October 31, 2011 and movement during the twelve months then ended are as follow:

	Options			Weighted average exercise price		Aggregate intrinsic value			Weighted average remaining contractual term
				US$		US$
Outstanding at November 1, 2010		70,000			2.57		171,397			2.45
Granted		250,000			1.88		293,292			4.29
Exercised		-			-		-			-
Forfeited or expired		(35,002	)		2.57		(82,803	)		1.45
Outstanding at October 31, 2011		284,998			1.96		381,886			3.94

A summary of the status of the Company’s non-vested options as of October 31, 2011 and movements during the year then ended are as follow:

	Options		Weighted average granted date fair value
			US$
Non-vested at November 1, 2010		70,000		1.91
Granted		250,000		1.17
Vested		34,998		1.91
Forfeited or expired		35,002		1.91
Non-vested at October 31, 2011		250,000		1.17

As of October 31, 2011, there was $214,424 of unrecognized compensation cost related to non-vested share-based compensation granted under the Company’s option plan.  

(3)  Warrants

As of October 31, 2011, the Company has 1,231,428 warrants outstanding at an average exercise price of $1.25 per warrant for one share each of the Company’s common stock. The warrants expire in 2012 and 2013.

	Warrants		Average exercise Price
			US$
Outstanding warrants at November 1, 2010		1,231,428		1.25
Warrants granted		-		-
Exercised		-		-
Expired/cancelled		-		-
Outstanding warrants at October 31, 2011		1,231,428		1.25

Information regarding the warrants outstanding at October 31, 2011 is summarized as below:

	Warrants outstanding at
	October  31, 2011
			Weighted		Weighted
			Average		Average
			Remaining		Exercise
Exercise Prices	Warrants		Contractual		Price
US$	Outstanding		Life (years)		US$
0.88		1,071,428		-		-
2.00		160,000		-		-
-		1,231,428		0.65		1.03