3. COMMON STOCK PURCHASE WARRANTS

6 Months Ended

Aug. 31, 2012

Notes to Financial Statements

COMMON STOCK PURCHASE WARRANTS

Common Stock

During the six-month period ended August 31, 2012, the Company did not issue any shares of common stock.  During the six-month period ended August 31, 2011, the Company issued 50,000 shares of restricted common stock to a consultant for services rendered, valued at $15,500 based on the estimated fair value of the common stock on the date of the grant, which is included in stock –based compensation.

Contributed Executive Services

Historically, the President of the Company had a salary arrangement which resulted in the Company recording expense of $10,000 annually for the contractual value of his services.  Although the Company had achieved profitable operations, he continued to not accept his salary. Accordingly, the Company recorded $2,500 and $5,000, the contractual value of these services, for the three and six month periods ended August 31, 2011, respectively, which is included in selling, general and administrative expenses and additional paid -in capital.  This agreement was terminated on May 15, 2012.

Warrants

In previous years, the Company had issued warrants and determined the estimated value of warrants granted using the Black-Scholes pricing model. The amount of the expense charged to operations for these warrants was $88,803 and $177,608 for the three and six months ended August 31, 2012 and $88,804 and $177,609 for the three and six months ended August 31, 2011.  All outstanding warrants are expected to be vested in December 2015.

A summary of warrant activity for the six months ended August 31, 2012 is as follows:

			Weighted-
			Average
	Warrants		Exercise
	Outstanding		Price
Outstanding at February 29, 2012		8,467,221		0.21
Granted		-		-
Exercised		-		-
Forfeited		-		-
Outstanding at August 31, 2012		8,467,221		0.21
Vested at August 31, 2012		1,693,444		0.21
Exercisable at August 31, 2012		1,693,444		0.21

The following table summarizes significant ranges of outstanding warrants as of August 31, 2012:

		Warrants Outstanding				Warrants Exercisable
			Weighted	Weighted			Weighted
			Average	Average			Average
Exercise Price		Number	Remaining	Exercise		Number	Exercise
		Outstanding	Life (Years)	Price		Outstanding	Price
$	0.21	8,467,221	8.29	$	0.21	1,693,444	$	0.21