BRIDGE LOANS

12 Months Ended

Dec. 31, 2011

9. BRIDGE LOANS

During 2010, the Company entered into securities purchase agreements in connection with private placement transactions that provided for the issuance of convertible notes payable with a six-month term \and an interest rate of 10% compounded annually and warrants to purchase shares of common stock. The warrants allow the holder to purchase shares of the Company's common stock at an exercise price equal to the lower of the face amount of the note divided by the lower of the price per share of the common stock as determined by a Financing Event (defined below) or 100% of the market value of the stock on the date of the note and have a three-year term.

In connection with the sale of the convertible notes, the Company incurred costs of $46,400 that were paid to placement agents for assistance with the sale of the convertible notes. These costs were accounted for as deferred financing costs and are amortized over the term of the convertible notes using the effective interest rate method.

During 2010, holders of $3,035,000 of these notes agreed to extend the terms of the notes to the earlier of six months from the maturity date of the original note or the closing of a debt or equity financing with a minimum of $2 million in gross proceeds (“Financing Event”), and to convert their notes into common stock equal to the amount of the note plus accrued interest divided by the lower of the stock price as determined by the closing of the Financing Event or 100% of the fair market value of the common stock at the date of the note. In exchange for the modification of the agreement, the holders received additional warrants such that the holders had twice the amount of warrants provided under their original note and warrant agreement.

During 2011, the Company the Company entered into additional securities purchase agreements in connection with private placement transactions that provided for the issuance of convertible notes payable in the principal amount of $2,282,500 with a six-month term and an interest rate of 10% compounded annually and warrants to purchase shares of common stock. The warrants allow the holder to purchase shares of the Company's common stock at an exercise price equal to the lower of the face amount of the note divided by the lower of the price per share of the common stock as determined by a Financing Event (defined below) or 100% of the market value of the stock on the date of the note and have a three-year term.

The Company allocated the proceeds of notes to the individual financial instruments included in the transactions based on their relative estimated fair values, resulting in a discount on convertible debt of $524,483.

The fair value of the conversion options and the detachable warrant liabilities were calculated using the Black-Scholes Option Pricing Model with the following assumptions:

	Expected term of years	0.50 - 3.00
	Violatility	55.63%
	Risk free interest rate	0.77%
	Expected dividends	-

On April 28, 2011, notes in the amount of $5,506,428 including interest were converted into 2,753,214 shares of common stock; therefore, the liability associated with the derivative component of the warrant was eliminated.

AirTouch Communications, Inc. 10-K