Convertible Notes and Warrants

12 Months Ended

Jul. 31, 2012

NOTE 6 - Convertible Notes and Warrants

On October 19, 2009, the Company completed a sale of 65 units (the “Units”) in a private placement (the “Offering”) to certain investors pursuant to a securities purchase agreement (the “Securities Purchase Agreement”). Each Unit consists of (i) $50,000 principal amount of 5% Senior Secured Convertible Promissory Notes (collectively, the “Notes”) convertible into shares of the Company’s common stock, par value $.001 per share (“Common Stock”), (ii) Series A Common Stock Purchase Warrants (the “Series A Warrants”) to purchase in the aggregate that number of shares of Common Stock initially issuable upon conversion of the aggregate amount of Notes issued as part of the Unit, at an exercise price of $0.15 per share with a three year term and (iii) Series B Common Stock Purchase Warrants (the “Series B Warrants”, together with the Series A Warrants, the “Warrants”) to purchase in the aggregate that number of shares of Common Stock initially issuable upon conversion of the aggregate amount of Notes issued as part of the Unit, at an exercise price of $0.25 per share with a five year term. The closing of the Offering occurred on October 19, 2009 (the “Closing”) and the Company received $3,250,000 in gross proceeds.

At July 31, 2012, the Company accounted for the conversion feature using the fair value method, with the resultant gain recognition recorded in the statement of operations. At July 31, 2012, the fair value of the conversion feature liability was $0.3 million. The fair value of the conversion feature was $6.1 million at the closing for the Offering and $1.3 million at July 31, 2011. The conversion feature was valued at July 31, 2012 and July 31, 2011 using the Black-Scholes valuation model and the following assumptions:

	July 31, 2012		July 31, 2011

Volatility	288.74	%	156.53	%
Risk-free interest rate	0.09	%	0.09	%
Remaining contractual life (years)	0.22		1.22

At the Closing, the Company recorded the Series A and Series B warrants as liabilities at their fair values of $6.1 million each, based upon the Black-Scholes valuation model. The warrants will be accounted for using mark-to-market accounting and charged to the statement of operations in a manner similar to the conversion feature at each reporting date.

At July 31, 2012, the Company accounted for the warrant liabilities using the fair value method, with the resultant gain recognition recorded in the statement of operations. At July 31, 2012, the fair value of the Series A and Series B warrant liabilities were approximately 0.3 million and $0.7 million, respectively. The fair value of the Series A warrant is was $6.1 million at the closing for the Offering and $1.3 million at July 31, 2011. The fair value of the Series B warrant was $6.1 million at the closing for the Offering and $2.0 million at July 31, 2011.

The Series A and Series B warrant liabilities were valued at July 31, 2012 and July 31, 2011 using the Black-Scholes valuation model and the following assumptions:

	Series A Warrants		Series B Warrants
	July 31, 2012	July 31, 2011	July 31, 2012	July 31, 2011

Volatility	288.74%	156.53%	190.38%	174.80%
Risk-free interest rate	0.09%	0.09%	0.27%	0.48%
Remaining contractual life (years)	0.22	1.22	2.22	3.22

- Definition

The entire disclosure for information about short-term and long-term debt arrangements, which includes amounts of borrowings under each line of credit, note payable, commercial paper issue, bonds indenture, debenture issue, own-share lending arrangements and any other contractual agreement to repay funds, and about the underlying arrangements, rationale for a classification as long-term, including repayment terms, interest rates, collateral provided, restrictions on use of assets and activities, whether or not in compliance with debt covenants, and other matters important to users of the financial statements, such as the effects of refinancing and noncompliance with debt covenants.

+ References+ Details

Tamir Biotechnology, Inc. 10-K