XML 32 R16.htm IDEA: XBRL DOCUMENT  v2.3.0.11
WARRANTS LIABILITY
 6 Months Ended
Jun. 30, 2011
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]  
Disclosure of Compensation Related Costs, Share-based Payments [Text Block]
9.
WARRANTS LIABILITY

On April 21, 2010, the Company issued to Anderson & Strudwick Incorporated (“A&S”) 150,000 warrants, as a portion of the placement commission for the IPO. On the same day, the Company granted a total of 7,500 warrants to Hawk Associates Inc. (“Hawk”), the Company’s investor relations consultancy. The Company had 157,500 warrants outstanding as of June 30, 2011. All the warrants issued to A&S have the right to purchase one common share for an exercise price of $10.00 per share with a term of 5 years. All the warrants granted to Hawk have the right to purchase one common share for an exercise price of $9.60 per share with a term of 5 years.

The fair value of the outstanding warrants at June 30, 2011 for A&S was calculated using the Black Scholes Model with the following assumptions:

         
Notes
Fair value per share
  $ 2.67    
(1)
Exercise price
  $ 10.00    
(2)
Risk free rate
    1.76 %  
(3)
Dividend yield
    -    
(4)
Expected term/contractual life (number of years)
    3.81    
(5)
Expected volatility
    96.5 %  
(6)

The fair value of the outstanding warrants at June 30, 2011 for Hawk was calculated using the Black Scholes Model with the following assumptions:

         
Notes
Fair value per share
  $ 2.67    
(1)
Exercise price
  $ 9.60    
(2)
Risk free rate
    1.76 %  
(3)
Dividend yield
    -    
(4)
Expected term/contractual life (number of years)
    3.81    
(5)
Expected volatility
    96.5 %  
(6)

The following table sets forth by level within the fair value hierarchy our financial assets and liabilities that were accounted for at fair value on a recurring basis as of June 30, 2011.

   
Carrying Value at 
June 30, 2011
   
Fair Value Measurement at
June 30, 2011
 
         
Level 1
   
Level 2
   
Level 3
 
Warrants liability
  $ 168,242     $ -     $ 168,242     $ -  


The following is a reconciliation of the beginning and ending balances of warrants liability measured at fair value on a recurring basis using Level 2 inputs:

Beginning balance, January 1, 2011
  $ 318,109  
Warrants issued
    -  
Fair value change of the issued warrants included in earnings
    (149,867 )
Ending balance, June 30, 2011
  $ 168,242  
 
(1) Fair value of underlying common shares
 
The $2.67 is the closing price of the Company’s common shares on June 30, 2011.
 
(2) Exercise price
 
The exercise price of the warrants was determined by the Company’s board of directors.
 
(3) Risk-free interest rate
 
Risk-free interest rate was estimated based on the yield to maturity of U.S. Treasury notes with a maturity period close to the term of the warrants.
 
(4) Dividend yield
 
Dividend yield of 0% was estimated by management of the Company.
 
(5) Life to expiration
 
Life to expiration was based on contractual term of the warrants.
 
(6) Volatility
 
The volatility of the underlying common shares during the life of the warrants was estimated based on the historical stock price volatility of listed comparable companies over a period comparable to the expected term of the warrants.

The fair value of the each A&S warrant at June 30, 2011 was $1.12. The total fair value of such warrants was $168,242 at June 30, 2011.

The fair value of the warrants for A&S was $270,000 on the date of grant which was recognized as IPO expense. The decrease in the fair value of the warrants during the period was recognized as a change in fair value of warrants liability which was included in condensed consolidated statements of income and comprehensive income.

The fair value of each Hawk warrant at June 30, 2011 was $1.14. The total fair value of such warrants was $8,567, which has not been reflected in the Company’s condensed consolidated financial statements due to immateriality. The fair value of the warrants for Hawk was $15,000 at the grant date. The decrease in fair value of the warrants resulted in a loss of $6,433, which has not been reflected in the Company’s condensed consolidated financial statements due to immateriality.