Quarterly report pursuant to Section 13 or 15(d)

NOTE 6: CONVERTIBLE NOTES AND DETACHABLE WARRANTS

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

a.           10% Senior Convertible Notes retired 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 were 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 yield of 0% and a contractual life of 3.0 years.

On the expiration date of August 15, 2011, the Company revalued its warrants, their embedded conversion options and their embedded put options and recorded a decrease in expense of approximately $145,000 in the third quarter of 2011 in financial expense, adjusting the respective values to zero. The tables below list the variables used in the Black-Scholes calculation and the resulting fair values using significant unobservable inputs:

Variables
 
December 31, 2009
   
December 31, 2010
   
August 15, 2011
 
Stock price
  $ 1.70     $ 1.67     $ 1.45  
Risk free interest rate
    1.70 %     1.02 %     0.34 %
Volatility
    79.85 %     76.90 %     80.37 %
Dividend yield
    0.00 %     0.00 %     0.00 %
Contractual life
 
1.6 years
   
0.6 years
   
0 years
 
                         
Values
 
December 31, 2009
   
December 31, 2010
   
August 15, 2011
 
Warrants
  $ 298,570     $ 131,355     $  
Conversion option
    88,156       28,822        
Puts
    7,371       1,162        
Total value
  $ 394,097     $ 161,339     $  

The convertible notes were retired on August 15, 2011.