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WARRANTS
 12 Months Ended
Dec. 31, 2011
Disclosure Of Compensation Related Costs, Share-Based Payments [Abstract]  
Disclosure of Compensation Related Costs, Share-based Payments [Text Block]
13. WARRANTS

 

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.(“Hawks”), the Company’s investor relations consultancy. The Company had 157,500 warrants outstanding as of December 31, 2011. All the warrants issued to “A&S” have the right to purchase one share of common stock for an exercise price of $10.00 per share with a term of 5 years. All the warrants granted to Hawks have the right to purchase one share of common stock for an exercise price of $9.60 per share with a term of 5 years.

 

The fair value of the outstanding warrants at December 31, 2011 for A&S was calculated using the Black Scholes Model with the following assumptions:

 

          Notes  
Fair value per share (USD/share)     1.42       (1 )
Exercise price (USD/share)     10.00       (2 )
Risk free rate     0.36 %     (3 )
Dividend yield     -       (4 )
Expected term/Contractual life (years)     3.31       (5 )
Expected volatility     125.5 %     (6 )

 

The fair value of the outstanding warrants at December 31, 2011 for Hawks was calculated using the Black Scholes Model with the following assumptions:

 

        Notes  
Fair value per share (USD/share)     1.42       (1 )
Exercise price (USD/share)     9.60       (2 )
Risk free rate     0.36 %     (3 )
Dividend yield     -       (4 )
Expected term/Contractual life (years)     3.31       (5 )
Expected volatility     125.5 %     (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 December 31, 2011 and 2010.

 

    Carrying Value at
December 31, 2011		     Fair Value Measurement at
December 31, 2011		  
          Level 1     Level 2     Level 3  
Warrants liability   $ 96,469     $ -     $ 96,469     $ -  

 

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:

 

    December 31,
2011		     December 31,
2010		  
    US$     US$  
Beginning balance     318,109       -  
Warrants issued     -       270,000  
Fair value change of the issued warrants included in earnings     (221,640 )     48,109  
Ending balance     96,469       318,109  

 

(1) Fair Value of Underlying Ordinary Shares

$1.42 was the close price of the Company’s Common Shares on December 31, 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 ordinary 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 each A&S warrant at December 31, 2011 was $0.64. The total fair value of such warrants was $96,469 at December 31, 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 statements of operations.

The fair value of each Hawks warrant at December 31, 2011 was $0.65. The total fair value of such warrants was $4,894, which has not been reflected in the Company’s consolidated financial statements due to immateriality.

The fair value of the warrants for Hawk at the grant date was $15,000. The increase in fair value of the warrants resulted in a loss of $11,478, which has not been reflected in the Company’s consolidated financial statements due to immateriality.

Following is a summary of the warrants activity:

    Number     Weighted
Average
Exercise Price		     Weighted Average Remaining
Contractual Life		  
Outstanding as of December 31, 2009     -                  
Granted     157,500                  
Forfeited     -                  
Exercised     -                  
Outstanding as of December 31, 2010     157,500                  
Granted     -                  
Forfeited     -                  
Exercised     -                  
Outstanding as of December 31, 2011     157,500     $ 9.98       3.31