Quarterly report pursuant to Section 13 or 15(d)

NOTE 6: CONVERTIBLE NOTES AND DETACHABLE WARRANTS

 v2.3.0.11
NOTE 6: CONVERTIBLE NOTES AND DETACHABLE WARRANTS
6 Months Ended
Jun. 30, 2011
Debt Disclosure [Text Block]
NOTE 6:                      CONVERTIBLE NOTES AND DETACHABLE WARRANTS

10% Senior Convertible Notes due August 15, 2011

Pursuant to the terms of a Securities Purchase Agreement dated August 14, 2008, the Company issued and sold to a group of institutional investors 10% senior convertible notes in the aggregate principal amount of $5.0 million due August 15, 2011. These notes are convertible at any time prior to August 15, 2011 at a conversion price of $2.24 per share.

As part of the securities purchase agreement, the Company issued to the purchasers of its 10% senior convertible notes due August 15, 2011, warrants to purchase an aggregate of 558,036 shares of common stock at any time prior to August 15, 2011 at a price of $2.24 per share. The warrants were classified in 2008 as equity based on relative fair value. The relative fair value of these warrants was determined in 2008 using the Black-Scholes pricing model, assuming a risk-free interest rate of 2.78%, a volatility factor 75%, dividend yields of 0% and a contractual life of 3.0 years.

On June 30, 2011, the Company revalued its warrants, their embedded conversion options and their embedded put options and recorded an increase in expense of approximately $102,300 in the second quarter of 2011 in financial expense. The table below lists the variables used in the Black-Scholes calculation and the resulting fair values using significant unobservable inputs:

Variables
 
December 31, 2009
   
December 31, 2010
   
June 30, 2011
 
Stock price
  $ 1.70     $ 1.67     $ 2.18  
Risk free interest rate
    1.70 %     1.02 %     0.81 %
Volatility
    79.85 %     76.90 %     79.84 %
Dividend yield
    0.00 %     0.00 %     0.00 %
Contractual life
 
1.6 years
   
0.6 years
   
0.1 years
 
                   
Values
 
December 31, 2009
   
December 31, 2010
   
June 30, 2011
 
Warrants
  $ 298,570     $ 131,355     $ 123,401  
Conversion option
    88,156       28,822       21,733  
Puts
    7,371       1,162       119  
Total value
  $ 394,097     $ 161,339     $ 145,253  

The final principal payment of $454,545 is due on the convertible notes on August 15, 2011.