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Stock Warrants

9 Months Ended

Sep. 30, 2014

(14) Stock warrants

On August 27, 2014, the Company issued 1,562,500 shares of our common stock and warrants to purchase up to 781,250 shares of our common stock. The warrants have an exercise price of $1.70 per share with two warrants being exercisable for one share of common stock. These warrants are exercisable immediately upon issuance on September 3, 2014 and have a term of exercise equal to five years from the date of issuance till September 2, 2019.

The fair value of the warrants issued was estimated by using the Binominal pricing model with the following assumptions:

Terms of warrants			5 years
Expected volatility			72.0%
Risk-free interest rate			1.69%
Expected dividend yield			0.81%

In connection with the Offering, the Company issued warrants to its placement agent of this Offering, which can purchase an aggregate of up to 2.50% of the aggregate number of shares of common stock sold in the Offering, i.e. 39,062 shares. These warrants have substantially the same terms as the warrants issued to purchaser in the Offering, except that the exercise price is $2.00 per share and the expiration date is June 26, 2019.

The fair value of the warrants issued was estimated by using the Binominal pricing model with the following assumptions:

Terms of warrants			4.81 years
Expected volatility			69.8%
Risk-free interest rate			1.62%
Expected dividend yield			0.81%

The Company applied judgment in estimating key assumptions in determining the fair value of the warrants on the date of issuance. The Company used historical data to estimate stock volatilities and expected dividend yield. The risk-free rates are consistent with the terms of the warrants and are based on the United States Treasury yield curve in effect at the time of issuance.

A summary of stock warrant activities is as below:

	Nine months ended September 30, 2014
	Number		Weighted average exercise price
Outstanding and exercisable at beginning of the period	-		$	-
Issued during the period		820,312		1.71
Exercised during the period		-		-
Cancelled or expired during the period		-		-
Outstanding and exercisable at end of the period		820,312	$	1.71
Range of exercise price		$1.70 to $2.00

No warrants were issued, exercised, cancelled or expired during the year ended December 31, 2013. The weighted average fair value of warrants granted for the period ended September 30, 2014 was $0.99 per share. The total intrinsic value of warrants exercised for the period ended September 30, 2014 was $nil. As of September 30, 2014, the aggregated intrinsic value of warrants outstanding and exercisable was $nil.