View Filing Data

Basic and diluted net loss per common share

$ (1,504)

$ (4,612)

$ (2,613)

$ (6,609)

$ (32,680)

$ (0.26)

$ (5.20)

$ (0.45)

$ (10.54)

$ (23.90)

Weighted average number of shares used in computing basic and dilutive net loss per common share

5,845,738

887,567

5,784,337

627,174

1,367,246

[1]	The amount recorded for the three and six months ending June 30, 2011 and 2010 and the cumulative period from inception include $31, $162, $31, $89 and $1,213, respectively, to related parties.

CONSOLIDATED STATEMENTS OF OPERATIONS (Parenthetical) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended		66 Months Ended
	Jun. 30, 2011	Jun. 30, 2010	Jun. 30, 2011	Jun. 30, 2010	Jun. 30, 2011
Operating expenses, related party	$ 31	$ 31	$ 162	$ 89	$ 1,213

STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT) - USD ($)
$ in Thousands

Total

Convertible Notes Payable

Employees

Non Employees

Charity

Investor

Common stock

Convertible Notes Payable

Common stock

Charity

Series A convertible preferred stock

Additional paid-in capital

Convertible Notes Payable

Additional paid-in capital

Employees

Additional paid-in capital

Non Employees

Additional paid-in capital

Charity

Additional paid-in capital

Investor

Deficit accumulated during the development stage

Beginning Balance at Dec. 31, 2006

$ 851

$ 20

$ 24

$ 2,288

$ (1,481)

Discounts to temporary equity

(4)

Issuance of stock | Common stock

(5,163)

$ 140

$ 2

$ 138

Ending Balance at Dec. 31, 2007

$ 98

$ 15

$ 98

$ 15

(4,020)

2,578

(6,644)

Issuance of warrants

360

(7)

(7,332)

Ending Balance at Dec. 31, 2008

(10,970)

2,960

(13,976)

Issuance of warrants

Loan modification

500

(7)

(6,149)

Ending Balance at Dec. 31, 2009

178

(16,378)

3,701

(20,125)

Conversion of Bridge notes

2,545

2,536

Exercise of stock options

(3)

Exercise of warrants | Cashless

^[1]

^[1]

(19)

(93)

(9,942)

Issuance of stock | Common stock

9,263

9,239

Ending Balance at Dec. 31, 2010

883

(239)

29,774

(30,067)

Exchange of convertible preferred stock for common stock | Series A Convertible Preferred Stock

$ (24)

Grants of warrants

$ 1,342

Exchange of convertible preferred stock for common stock | Series B Convertible Preferred Stock

11,971

11,925

Exercise of warrants

Issuance of shares to a consultant

^[1]

Issuance of shares in connection with restructuring of venture loan

213

210

(2,613)

Ending Balance at Jun. 30, 2011

$ 764

$ 30

$ 764

$ 30

$ (1,753)

$ 60

$ 30,867

$ (32,680)

Grants of warrants

$ 43

[1]	Consideration for less than $1.

STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT) (Parenthetical) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2010	Dec. 31, 2006
Common stock
Issuance of stock, issuance costs	$ 1,768
Series A Convertible Preferred Stock
Issuance of stock, issuance costs		$ 33

CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Thousands	6 Months Ended		66 Months Ended
	Jun. 30, 2011	Jun. 30, 2010	Jun. 30, 2011
Cash flows from operating activities
Net loss	$ (2,613)	$ (6,609)	$ (32,680)
Adjustments to reconcile net cash flows used in operating activities: Items not affecting cash flows
Depreciation and amortization	38	45	431
Change in deferred tax assets and liabilities	16	(8)	44
Increase (decrease) in accrued severance pay	(179)		148
Share-based payment expenses	883	1,817	3,576
Accrued interest expense	98	2,398	2,855
Decrease (increase) in fair value of warrants	(45)	(448)	(997)
Gain on restructuring of venture loan	(963)		(963)
Extinguishment of debt			321
Exchange rate (gains) losses	(24)	(18)	28
Changes in current assets and liabilities
Decrease (increase) in receivables, prepaid expenses and other current assets	(145)	45	(394)
Increase (decrease) in payables and accruals	18	(9)	792
Net cash used in operating activities	(2,916)	(2,787)	(26,839)
Cash flows from investing activities
Acquisition of property and equipment	(28)	(34)	(599)
Decrease in lease deposits			(9)
Investment in restricted short-term deposits and cash equivalents	(1,031)	2,582	(1,051)
Net cash provided by (used in) investing activities	(1,059)	2,548	(1,659)
Cash flows from financing activities
Receipt of a venture loan			5,000
Repayment on account of venture loan	(1,034)	(88)	(2,590)
Issuance of common stock and warrants, net		9,263	9,263
Issuance of warrants			1,070
Receipt of convertible loans			3,976
Issuance of convertible preferred stock			12,195
Exercise of common stock options and warrants	3	11	17
Net cash provided by (used in) financing activities	(1,031)	9,186	28,931
Effect of exchange rate changes on cash and cash equivalents	6	1	(26)
Increase (decrease) in cash and cash equivalents	(5,000)	8,948	407
Cash and cash equivalents at beginning of period	5,407	744
Cash and cash equivalents at end of period	407	9,692	407
Supplemental disclosure of cash flows information
Interest paid	151	199	1,137
Non-cash investing and financing transactions
Conversion of convertible loan into convertible preferred stock			1,964
Extinguishment of debt			321
Discount to the series B convertible preferred stock			43
Conversion of bridge notes into common stock		2,545	2,545
Amortization of discounts to temporary equity		3	21
Issuance of shares in consideration of restructuring of venture loan	$ 213		213
Loan warrants
Non-cash investing and financing transactions
Allocation of fair value			334
Conversion Warrants
Non-cash investing and financing transactions
Allocation of fair value		1,564	1,564
Series B Convertible Preferred Stock
Non-cash investing and financing transactions
Exchange of convertible preferred stock for common stock		11,971	11,971
Series A Convertible Preferred Stock
Non-cash investing and financing transactions
Exchange of convertible preferred stock for common stock		$ 24	$ 24

General

6 Months Ended

Jun. 30, 2011

General

Note 1—General

Vringo, Inc. (a Development Stage Company) (the "Parent") was incorporated in Delaware on January 9, 2006 and commenced operations during the first quarter of 2006. The Parent formed a wholly-owned subsidiary, Vringo (Israel) Ltd. (the "Subsidiary") in March 2006, primarily for the purpose of providing research and development services, as detailed in the intercompany service agreement. The Parent and the Subsidiary are collectively referred to herein as the "Company".

The Company is engaged in developing software platforms and applications for mobile phones. The Company provides a variety of mobile video services including a comprehensive platform that allows users to create, download and share video ringtones. The Company's proprietary ringtone platform includes social networking capability and integration with web systems.

The Company is still in the development stage. There is no certainty regarding the Company's ability to complete the development of its products and ensure the success of its marketing. The continuation of the stages of development and the realization of assets related to the planned activities depend on future events, including future financings and achieving operational profitability.

In June 2010, the Company completed an initial public offering (the "IPO") of 2,392,000 units, each containing one share of common stock and two warrants, at an issue price of $4.60 per unit. Each warrant in the IPO unit is exercisable for five years after the IPO at an exercise price of $5.06. Gross proceeds of the IPO totaled approximately $11 million, of which the Company received approximately $9.3 million in net proceeds after deducting underwriting discounts and other offering costs. Immediately prior to the closing of the offering, the Company's outstanding shares of preferred stock were exchanged for shares of common stock and the Company effected a 1 for 6 reverse stock split of its common stock. The Company issued a stock dividend to holders of the preferred stock prior to the split and exchange. All share and per-share information in these consolidated financial statements have been adjusted to give effect to the reverse stock split. On July 27, 2010, the units were separated into their components and the shares and warrants began to trade separately. Upon separation of the units into shares and warrants, the units ceased trading.

There is still significant doubt as to the ability of the Company to continue operating as a "going concern". The Company has incurred significant losses since its inception and expects that it will continue to operate at a net loss in the foreseeable future. For the three and six month periods ended June 30, 2011 and for the cumulative period from inception until June 30, 2011, the Company incurred net losses of $1.5 million, $2.6 million and $32.7 million, respectively. The Company's deficit in stockholders' equity as of June 30, 2011 was $1.8 million.

In July 2011, after the balance sheet date, the Company signed a non-binding Letter of Intent to acquire substantially all the assets, and assume substantially all of the liabilities, of Zlango Ltd. (see Note 8 b). The consummation of the transaction is subject to the signing of a definitive agreement, completion of due diligence investigation and receipt of regulatory and stockholder approval. In addition, during July 2011, the Company raised an aggregate amount of $2.5 million through the issuance of convertible notes in a private placement and intends to seek additional financing. There is no assurance that the subsequent financing will be consummated. Should it not be consummated by January 1, 2012, the convertible notes will be repayable in full, unless earlier converted (see Note 8 c). Based on the above, the Company has sufficient cash to meet planned operating needs into the first quarter of 2012.

These financial statements were prepared using principles applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business for the foreseeable future, and do not include any adjustments to reflect the possible effects on the recoverability and classification of assets, or the amounts and classification of liabilities that may result should the Company not be able to continue as a going concern.

The high-tech industry in which the Company operates is highly competitive and is characterized by the risks of rapidly changing technologies. Penetration into global markets requires investment of considerable resources and continuous development efforts. The Company's future success depends upon several factors including the technological quality, price and performance of its product relative to those of its competitors.

As of June 30, 2011, approximately $180 thousand of the Company's net liabilities were located outside of the United States.

Significant Accounting and Reporting Policies

6 Months Ended

Jun. 30, 2011

Significant Accounting and Reporting Policies

Note 2—Significant Accounting and Reporting Policies

(a) Basis of presentation

The accompanying consolidated financial statements include the accounts of the Parent and the Subsidiary and are presented in accordance with generally accepted accounting principles in the United States of America ("U.S. GAAP"). All significant intercompany balances and transactions have been eliminated in consolidation.

The accompanying unaudited consolidated financial statements were prepared in accordance with U.S. GAAP and instructions to Form 10-Q and, therefore, do not include all disclosures necessary for a complete presentation of financial position, results of operations, and cash flows in conformity with generally accepted accounting principles. These financial statements should be read in conjunction with the consolidated financial statements and related notes for the year ended December 31, 2010. The results of operations for the three and six month period ended June 30, 2011 are not necessarily indicative of the results that may be expected for the entire fiscal year or for any other interim period.

(b) Development stage enterprise

The Company's principal activities to date have been the research and development of its products and the Company has not generated significant revenues from its planned, principal operations. Accordingly, the Company's financial statements are presented as those of a development stage enterprise.

The currency of the primary economic environment in which the operations of the Company are conducted is the U.S. dollar ("dollar"). Therefore, the dollar has been determined to be the Company's functional currency.

Transactions in foreign currency (primarily in New Israeli Shekels or "NIS") are recorded at the exchange rate as of the transaction date. All exchange gains and losses from re-measurement of monetary balance sheet items denominated in non-dollar currencies are reflected as finance expense in the statement of operations, as they arise.

At June 30, 2011, the exchange rate was U.S. $1 = NIS 3.415 (December 31, 2010—U.S. $1 = NIS 3.549). The average exchange rate for the three and six months ended June 30, 2011 was U.S. $1 = 3.441 NIS and U.S. $1 = 3.521 NIS, respectively (three and six months ended June 30, 2010— U.S. $1 = NIS 3.783 and US $1 = NIS 3.759, respectively).

(d) Use of estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as at the date of the financial statements and the reported amounts of revenues and expenses during the reported period. Actual results may differ from such estimates. Significant items subject to such estimates and assumptions include the useful lives of property and equipment, deferred tax assets and liabilities, valuation of warrants, valuation of common stock share-based compensation, income tax uncertainties and other contingencies. The current economic environment has increased the degree of uncertainty inherent in those estimates and assumptions.

(e) Accounting for share-based compensation

Share-based compensation is recognized as an expense in the financial statements and such cost is measured at the grant-date fair value of the equity-settled award. The expense is recognized using the straight-line method, over the requisite service period, and is reduced for estimated forfeitures.

The fair value of stock options granted to management, employees and directors (except for the $5.50 options granted in 2010 and in 2011) is estimated at the date of grant using the Black-Scholes-Merton option-pricing model, which takes into consideration the share price at the date of grant, the exercise price of the option, the expected life of the option, risk-free interest rate, expected dividend and the expected volatility. The fair value of the stock options granted to management, employees and directors at an exercise price of $5.50 was valued using the Lattice model, which takes into consideration the share price at the date of grant, the exercise price of the option, the expected life of the option, risk free interest rate, expected dividend, and the expected volatility. The Company uses the Lattice option pricing model for the valuation of options that are not plain vanilla that are issued to management, employees and directors.

The fair value of stock options granted to consultants is estimated at the date of grant using the Black-Scholes-Merton option-pricing model. In cases where no measurement date has been reached nor there is a counter-party performance commitment, the options are revalued at the reporting date. The options are valued using the share price, the exercise price of the option, the expected life of the option, risk-free interest rates and the expected volatility, at the reporting period date.

(f) Impact of new accounting standards not yet adopted

In May 2011, the FASB issued guidance to amend the accounting and disclosure requirements on fair value measurements (ASU 2011-04). The new guidance limits the highest-and-best-use measure to nonfinancial assets, permits certain financial assets and liabilities with offsetting positions in market or counterparty credit risks to be measured at a net basis, and provides guidance on the applicability of premiums and discounts. Additionally, the new guidance expands the disclosures on Level 3 inputs by requiring quantitative disclosure of the unobservable inputs and assumptions, as well as description of the valuation processes and the sensitivity of the fair value to changes in unobservable inputs. The new guidance will be effective beginning January 1, 2012. The Company does not anticipate a material impact on its financial statements upon adoption of the new requirements.

(g) Net loss per share data

Basic net loss per share is computed by dividing the net loss for the period by the weighted-average number of shares of common stock outstanding during the period. Diluted net loss per share is computed by dividing the net loss for the period by the weighted-average number of shares of common stock plus dilutive potential common stock considered outstanding during the period. However, as the Company generated net losses in all periods presented, potentially dilutive securities, comprised mainly of warrants and stock options, are not reflected in diluted net loss per share because such shares are anti-dilutive.

The table below presents the computation of basic and diluted net losses per common share:

													Cumulative
													from inception
	Three months ended June 30,						Six months ended June 30,						to June 30,
	2011			2010			2011			2010			2011
Numerator:	(in thousands, except share and per share data)

Net loss attributable to common stock shares (basic and diluted)		(1,504	)		(4,612	)		(2,613	)		(6,609	)		(32,680	)
Denominator:
Weighted average number of common stock shares outstanding during the period (basic and diluted)		5,756,345			839,332			5,654,929			603,057			1,319,021
Weighted average number of penny stock options and warrants (basic and diluted)		89,393			48,235			129,408			24,117			48,225
Basic and diluted common stock share outstanding		5,845,738			887,567			5,784,337			627,174			1,367,246
Basic and diluted net losses per common stock share		(0.26	)		(5.20	)		(0.45	)		(10.54	)		(23.90	)

(h) Reclassification

Certain balances have been reclassified to conform to current year presentation.

Fair Value Measurements

6 Months Ended

Jun. 30, 2011

Fair Value Measurements

Note 3—Fair Value Measurements

The Company measures fair value in accordance with ASC 820-10, "Fair Value Measurements and Disclosures" (formerly SFAS 157, Fair Value Measurements). ASC 820-10 clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or a liability. As a basis for considering such assumptions, ASC 820-10 establishes a three-tier value hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value:

Level 1 Inputs: Unadjusted quoted prices in active markets for identical assets or liabilities accessible to the reporting entity at the measurement date.

Level 2 Inputs: Other than quoted prices included in Level 1 inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability.

Level 3 Inputs: Unobservable inputs for the asset or liability used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at measurement date. The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

The Company measures its cash equivalents, Special Bridge Warrants and Conversion Warrants at fair value. Cash equivalents are classified within Level 1 because they are valued using quoted active market prices. The Special Bridge Warrants and Conversion Warrants are classified within Level 3 because they are valued using the Black-Scholes-Merton and the Monte-Carlo (as these warrants include a down-round protection clause) models which utilize significant inputs that are unobservable in the market such as the expected stock price volatility and the dividend yield, and the remaining period of time the warrants will be outstanding before they expire.

The following table presents the Company's assets and liabilities measured at fair value on a recurring basis as of June 30, 2011 and December 31, 2010, aggregated by the level in the fair-value hierarchy within which those measurements fall:

			Fair value measurement at reporting date using
	June 30, 2011		Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
Description	U.S.$ thousands
Assets
Cash equivalents		51		51		—		—
Cash equivalents (restricted)		1,051		1,051		—		—
Total assets		1,102		1,102		—		—
Liabilities
Derivative liabilities on account of warrants		1,725		—		—		1,725
Total liabilities		1,725		—		—		1,725

			Fair value measurement at reporting date using
	December 31, 2010		Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
Description	U.S.$ thousands
Assets
Cash equivalents		4,542		4,542		—		—
Total assets		4,542		4,542		—		—
Liabilities
Derivative liability on account of warrants		1,770		—		—		1,770
Total liabilities		1,770		—		—		1,770

In addition to the above, the Company's financial instruments at June 30, 2011 and December 31, 2010, consisted of cash, accounts receivable, long-term deposits, accrued expenses and the venture loan. The carrying amounts of all the aforementioned financial instruments, approximate fair value, except the venture loan (see below).

The following table summarizes the changes in the Company's liabilities measured at fair value using significant unobservable inputs (Level 3) during the six months ended June 30, 2011:

	Level 3
	Special Bridge Warrants			Conversion Warrants			Total
	U.S.$ thousands
Original allocated amount		1,070			—			1,070
Additional allocated amount (upon IPO)		88			1,564			1,652
Fair value adjustment included in statement of operations		(382	)		(570	)		(952	)
Balance at December 31, 2010		776			994			1,770
Fair value adjustment included in statement of operations		172			(217	)		(45	)
Balance at June 30, 2011		948			777			1,725

Carrying amounts and the related estimated fair value of the venture loan are as follows: (see also Note 4):

June 30, 2011

December 31, 2010

Carrying

Amount

Fair Value

Carrying

Amount

Fair Value

U.S.$ thousands

Venture loan

1,051

3,173

3,317

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

Reference 1: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Statement of Financial Accounting Standard (FAS)
-Number 133
-Paragraph 44A, 44B
-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 2: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Statement of Financial Accounting Standard (FAS)
-Number 107
-Paragraph 15C, 15D
-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 3: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Statement of Financial Accounting Standard (FAS)
-Number 107
-Paragraph 15A
-Subparagraph a-d
-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 4: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Statement of Financial Accounting Standard (FAS)
-Number 107
-Paragraph 15B
-Subparagraph a, b
-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 5: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Statement of Financial Accounting Standard (FAS)
-Number 107
-Paragraph 3, 10, 14, 15
-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 6: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Statement of Financial Accounting Standard (FAS)
-Number 157
-Paragraph 32, 33, 34
-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 7: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Statement of Financial Accounting Standard (FAS)
-Number 159
-Paragraph 17-22, 27, 28
-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 8: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 820
-SubTopic 10
-Section 50
-Paragraph 2
-URI http://asc.fasb.org/extlink&oid=6925170&loc=d3e19207-110258

Reference 9: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 825
-SubTopic 10
-Section 50
-Paragraph 21
-URI http://asc.fasb.org/extlink&oid=6947722&loc=d3e13537-108611

Reference 10: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 825
-SubTopic 10
-Section 50
-Paragraph 28
-URI http://asc.fasb.org/extlink&oid=6957238&loc=d3e14064-108612

Reference 11: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 825
-SubTopic 10
-Section 50
-Paragraph 10
-URI http://asc.fasb.org/extlink&oid=6947722&loc=d3e13433-108611

Reference 12: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 825
-SubTopic 10
-Section 50
-Paragraph 30
-URI http://asc.fasb.org/extlink&oid=6957238&loc=d3e14172-108612

Reference 13: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 825
-SubTopic 10
-Section 50
-Paragraph 16
-URI http://asc.fasb.org/extlink&oid=6947722&loc=d3e13504-108611

Reference 14: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 820
-SubTopic 10
-Section 50
-Paragraph 5
-URI http://asc.fasb.org/extlink&oid=6925170&loc=d3e19296-110258

Venture Loan

6 Months Ended

Jun. 30, 2011

Venture Loan

Note 4—Venture Loan

On June 8, 2011, the Company entered into a Settlement Agreement (the “Agreement”) with the lenders of the venture loan (the "Lenders"), pursuant to which the Lenders agreed to accept less than the full amount owed to them by the Company. As part of the Agreement, the Company immediately repaid $331 thousand, and placed additional $1,051 thousand as collateral into a restricted account. In addition, the Company issued the Lenders 250,000 shares of its common stock, in exchange for 250,000 Senior Lender Warrants, which were cancelled. Subsequent to the balance sheet date, the Company repaid the outstanding balance of its venture loan, using the funds set aside in the restricted account (see Note 8 a).

On the date of the Agreement, subsequent to the repayment of the $331 thousand, the loan balance was recorded down to $1,051 thousand. The difference between the fair market value of the shares of common stock issued and the fair market value of the cancelled Senior Lender Warrants, amounting to $231 thousand, was recorded in the statement of stockholders’ equity. In addition, the difference between the carrying value of the loan and the total sum of future payments on the loan, including the above mentioned $231 thousand, net of legal fees, resulted in a gain on restructuring of debt, in the total amount of $963 thousand, recorded in the statements of operations. Basic and diluted per share gain on restructuring of venture loan is $0.16.

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

Stockholders' Equity

6 Months Ended

Jun. 30, 2011

Stockholders' Equity

Note 5—Stockholders' Equity

Stock Options

On January 31, 2011, the Company granted 480 thousand options to purchase shares of common stock to its employees, management and consultants (see below). During the three and six month period ended June 30, 2011, 120 thousand and 234 thousand stock options were forfeited and 20 thousand and 20 thousand stock options were exercised, respectively.

In addition, during the three and six month period ended June 30, 2011, the Company issued 0 and 27 thousand shares of common stock to one of its consultants, respectively. As a result, compensation expense in the total amount of approximately $45 thousand was recorded.

In January 2011, the Company granted warrants to purchase 40 thousand shares of common stock as a charitable donation. 20 thousand of these warrants were granted at an exercise price of $5.50 per share and the remaining 20 thousand at an exercise price of $0.01 per share. The total fair value of approximately $43 thousand was calculated using the Black-Scholes-Merton model, using the following assumptions: stock price of $1.68, expected life of 6 years, risk-free interest rate of 2.38%, expected volatility of 56.41% and no dividend yield. The total fair value of the grant was recorded as an additional share-based payment expense in the six month period ended June 30, 2011. In April 2011, the Company issued 19,862 shares of common stock upon exercise of 20 thousand charitable warrants with an exercise price of $0.01 per share.

As of June 30, 2011, there was approximately $2.5 million of total unrecognized share-based payment costs related to non-vested share-based compensation arrangements granted under the Company’s incentive plans. That cost is expected to be recognized over an estimated 3.25 years period.

On January 31, 2011, the Company's Board of Directors (the "Board") approved the granting of 216 thousand options to management, employees and consultants at an exercise price of $0.01 per share. These options will vest yearly over three and four year periods (according to the applicable schedule of each optionee). The Board also approved the granting of 264 thousand options at an exercise price of $5.50 to its management, employees and consultants. These options will vest over three and four years (according to the applicable schedule of each optionee).

As of June 30, 2011, there were approximately 11.1 million shares of common stock available for future grants.

The following table summarizes the option activity for the year 2011 to balance sheet date, by grant date:

	No. of options to Employees		No. of options to Non-Employees		Exercise price		Average fair value of granted option
					U.S.$		U.S.$
January 31, 2011		194,000		22,000		0.01		1.67
January 31, 2011		252,500		12,000		5.50		0.42

The fair value of the $0.01 options granted January 31, 2011, to management employees and directors was calculated using the Black-Scholes-Merton model with an expected life of 4-4.25 years, a risk-free interest rate of 1.44%-1.55% and an expected volatility of 47.9%-52.2% and no dividend yield. The fair value of the common stock used for this calculation was $1.68.

The fair value of the $5.50 options granted January 31, 2011, to employees and directors was calculated using the Lattice model with an expected life of 6 years, a risk-free interest rate of 2.38% and an expected volatility of 56.41% and no dividend yield. The fair value of the common stock used for this calculation was $1.68.

The total fair value of all options granted to non-employees, is calculated using the Black-Scholes-Merton model with an expected life of 2.5-5.75 years, stock price of $1.22, a risk free interest rate of 0.57%-2.01% and an expected volatility of 45.71%-54.41% and no dividend yield.

The entire disclosure for shareholders' equity, comprised of portions attributable to the parent entity and noncontrolling interest, if any, including other comprehensive income (as applicable). Including, but not limited to: (1) balances of common stock, preferred stock, additional paid-in capital, other capital and retained earnings; (2) accumulated balance for each classification of other comprehensive income and total amount of comprehensive income; (3) amount and nature of changes in separate accounts, including the number of shares authorized and outstanding, number of shares issued upon exercise and conversion, and for other comprehensive income, the adjustments for reclassifications to net income; (4) rights and privileges of each class of stock authorized; (5) basis of treasury stock, if other than cost, and amounts paid and accounting treatment for treasury stock purchased significantly in excess of market; (6) dividends paid or payable per share and in the aggregate for each class of stock for each period presented; (7) dividend restrictions and accumulated preferred dividends in arrears (in aggregate and per share amount); (8) retained earnings appropriations or restrictions, such as dividend restrictions; (9) impact of change in accounting principle, initial adoption of new accounting principle and correction of an error in previously issued financial statements; (10) shares held in trust for Employee Stock Ownership Plan (ESOP); (11) deferred compensation related to issuance of capital stock; (12) note received for issuance of stock; (13) unamortized discount on shares; (14) description, terms, and number of warrants or rights outstanding; (15) shares under subscription and subscription receivables, effective date of new retained earnings after quasi-reorganization and deficit eliminated by quasi-reorganization and, for a period of at least ten years after the effective date, the point in time from which the new retained dates; and (16) retroactive effective of subsequent change in capital structure.

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Commitments and Contingencies

Commitments and Contingencies

6 Months Ended

Jun. 30, 2011

Note 6—Commitments and Contingencies

Future minimum lease payments under non-cancelable operating leases for office space and cars, as of June 30, 2011, are as follows:

	U.S.$
	thousands
Year ending December 31,
2011 (six months ending December 31, 2011)		48
2012		55
2013		8
		111

Rental expense for operating leases for both office space and cars for the six months ended June 30, 2011 and 2010 was $55 thousand, and $65 thousand, respectively. Rental expense for operating leases for both office space and cars for the three months ended June 30, 2011 and 2010 was $22 thousand, and $39 thousand, respectively.

The entire disclosure for commitments and contingencies.

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Risks and Uncertainties

6 Months Ended

Jun. 30, 2011

Risks and Uncertainties

Note 7—Risks and Uncertainties

(a)

The Company's primary business is to provide video ringtones globally by partnering with international telecommunication carriers. Principal markets targeted are the U.S., Europe and the Far East. The Company's business depends on the technological infrastructures, wireless networks and information systems of its international carrier partners.

(b)

The wireless industry in which the Company conducts its business is characterized by rapid technological changes, frequent new product innovations, changes in customer requirements and expectations and evolving industry standards.

(c)

The Company's data is hosted at a remote location. Although the Company has full alternative site data backed up, they do not have data hosting redundancy and are thus exposed to the business risk of significant service interruptions.

(d)

A significant portion of the Company's expenses are denominated in NIS. The Company expects this level of NIS expenses to continue for the foreseeable future. If the value of the U.S. dollar weakens against the value of NIS, there will be a negative impact on the Company's operating costs. In addition, to the extent the Company holds monetary assets and liabilities that are denominated in currencies other than the U.S. dollar, the Company will be subject to the risk of exchange rate fluctuations.

(e)

In order to continue operating as a going concern the Company needs to raise capital through further debt or equity transactions. The Company is thus exposed to a market risk that it will not be able to raise this capital, as disclosed in Note 1.

The entire disclosure for any concentrations existing at the date of the financial statements that make an entity vulnerable to a reasonably possible, near-term, severe impact. This disclosure informs financial statement users about the general nature of the risk associated with the concentration, and may indicate the percentage of concentration risk as of the balance sheet date.

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