FAIR VALUE MEASUREMENTS AND FINANCIAL INSTRUMENTS

9 Months Ended

Sep. 30, 2013

Fair Value Measurements and Financial Instruments [Abstract]

FAIR VALUE MEASUREMENTS AND FINANCIAL INSTRUMENTS

NOTE 3  FAIR VALUE MEASUREMENTS AND FINANCIAL INSTRUMENTS

ASC Topic 820, Fair Value Measurement and Disclosures, defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. This topic also establishes a fair value hierarchy that requires classification based on observable and unobservable inputs when measuring fair value. The fair value hierarchy distinguishes between assumptions based on market data (observable inputs) and an entity’s own assumptions (unobservable inputs). The hierarchy consists of three levels:

¨ Level one — Quoted market prices in active markets for identical assets or liabilities;

¨ Level two — Inputs other than level one inputs that are either directly or indirectly observable; and

¨ Level three — Unobservable inputs developed using estimates and assumptions, which are developed by the reporting entity and reflect those assumptions that a market participant would use.

Determining which category an asset or liability falls within the hierarchy requires significant judgment. The Company evaluates its hierarchy disclosures each quarter.

Assets and liabilities measured at fair value on a recurring basis using significant observable inputs (Level 2) from January 1, 2013 to September 30, 2013 are summarized as follows:

	Warrant liability (Level 2)
Balance at January 1, 2013	$	354,000
Change in fair value included in earnings		65,000
Exercise of warrants		(64,000)
Balance at September 30, 2013	$	355,000

The Company did not identify any other  assets and liabilities that are required to be presented in the condensed consolidated balance sheets at fair value in accordance with the relevant accounting standards.

The carrying values of cash and cash equivalents, trade receivables and payables approximate their fair values due to the short maturities of these instruments.

The Company estimated the fair value of its warrants as of September 30, 2013 and December 31, 2012 using the Black-Scholes option pricing model using the following assumptions:

	September 30, 2013		December 31, 2012
Series B Warrants
Market price of common stock:	$	4.980	$	4.390
Exercise price:		3.50		3.50
Remaining contractual life (years):		0.08		0.83
Dividend yield:		–		–
Expected volatility:		23.35%		51.41%
Risk-free interest rate:		0.02%		0.13%
Fair value – Series B Warrants	$	334,000	$	319,000
Underwriter Warrants
Market price of common stock:	$	4.980	$	4.390
Exercise price:		4.80		4.80
Remaining contractual life (years):		0.93		1.68
Dividend yield:		–		–
Expected volatility:		34.85%		61.26%
Risk-free interest rate:		0.08%		0.21%
Fair value – Underwriter Warrants	$	21,000	$	35,000
Fair value – Total	$	355,000	$	354,000

During the nine months ended September 30, 2013, 28,348 warrants were exercised on a cashless basis to purchase 10,500 shares of common stock. In accordance with ASC 470-50-40, “Debt – Modification and Extinguishments – Derecognition”, an aggregate gain of $3,520 was recognized.  For details, please refer to the following table.

Exercise date:	May 22, 2013
Market price of common stock:	$	5.76
Exercise warrants:		28,348
Exercise price:	$	3.5
Remaining contractual life (years):		0.44
Dividend yield:		-
Expected volatility:		35.48	%
Risk-free interest rate:		0.07	%
Fair values:	$	2.2653
Gain on extinguishment of warrant liabilities	$	3,520

During the nine months ended September 30, 2012, 125,000 warrants were exercised on a cashless basis to purchase 48,402 shares of common stock. In accordance with ASC 470-50-40, “Debt – Modification and Extinguishments – Derecognition”, an aggregate gain of $73,291 was recognized.  For details, please refer to the following table.

Exercise date:	February 7, 2012
Market price of common stock:	$	6.44
Exercise warrants:		125,000
Exercise price:	$	3.5
Remaining contractual life (years):		1.73
Dividend yield:		-	%
Expected volatility:		39.43	%
Risk-free interest rate:		0.21	%
Fair values:	$	3.08
Gain on extinguishment of warrant liabilities	$	73,291