WARRANTS

12 Months Ended

Dec. 31, 2011

WARRANTS

On June 2, 2009, pursuant to an Exchange Agreement, the company issued warrants to purchase an aggregate 4,333,333 shares of Common Stock at an exercise price of $2.55 per share. On November 3, 2009, 3,105,000 shares of Common Stock were issued in a public offering upon exercise of the warrants. During the year ended December 31, 2010, the holders of the remaining warrants exercised the warrants to purchase 1,228,334 shares of Common Stock.

During the year ended December 31, 2010, certain holders of warrants exercised warrants to purchase 1,228,334 shares of Common Stock. As of December 31, 2010, there were no remaining warrants outstanding from the private placement of February 2008; and accordingly the Company recorded $2,103,832 in other expense relating to the change in the fair value of the warrants. The fair value of the warrants upon exercise on December 31, 2010 of $5,481,749 was credited against additional paid-in capital.

On December 1, 2009, the company and Hayden Communications International, Inc. (“HCI”) entered into an Investor Relations Consulting Agreement (“Investor Relations Consulting Agreement”), which took effective on December 9, 2009. The valid term of Investor Relations Consulting Agreement was one year and expired on December 9, 2010. Pursuant to Investor Relations Consulting Agreement, the Company issued warrants to purchase 75,000 shares of the Company’s common stock at the exercise price of $4.50 during the period from July 25, 2011 to July 25, 2014 as partial compensation to HCI on July 25, 2011.

On December 9, 2009, the Company issued its CFO a warrant to purchase an aggregate of 100,000 shares of Common Stock at an exercise price of $4.50 per share. The value of these two warrants were deemed immaterial and no compensation cost was recorded pursuant to FASB ASC Topic 718 for the year 2011 and 2009.

The following table presents a reconciliation of the warrant liability measured at fair value on a recurring basis using significant unobservable input (Level 3) from January 1, 2010 to December 31, 2010:

	Warrant Liability
Balance at January 1, 2010	$	3,377,917
Change in fair value included in earnings		2,103,832
Exercise of warrants during the year		(5,481,749	)
Balance at December 31, 2010	$	-

For the year ended December 31, 2010, the net adjustment to fair value resulted in a loss of $2.1 million and is included in “Changes in the fair value of warrant liability” in the consolidated statement of income and comprehensive income.