3. COMMON STOCK PURCHASE WARRANTS

9 Months Ended

Nov. 30, 2012

Notes to Financial Statements

COMMON STOCK PURCHASE WARRANTS

NOTE 3:   COMMON STOCK PURCHASE WARRANTS

Common Stock

During the nine-month period ended November 30, 2012, the Company issued 10,000 shares of restricted stock to an employee for services rendered, valued at $3,100.  During the nine-month period ended November 30, 2011, the Company issued 50,000 shares of restricted common stock to a consultant for services rendered, valued at $15,500, and 25,000 shares of restricted common stock to employees as compensation, at a total value of $6,250.  The values of stock issued were based on the estimated fair value of the common stock on the dates of the grants and are 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 $7,500, the contractual value of these services, for the three and nine month periods ended November 30, 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 $88,804 and $266,412 for the three and nine months ended November 30, 2012 and $88,804 and $266,413 for the three and nine months ended November 30, 2011.  All outstanding warrants are expected to be vested in December 2015.

A summary of warrant activity for the nine months ended November 30, 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 November 30, 2012		8,467,221		0.21
Vested at November 30, 2012		1,693,444		0.21
Exercisable at November 30, 2012		1,693,444		0.21

The following table summarizes significant ranges of outstanding warrants as of November 30, 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	8.04	$	0.21	1,693,444	$	0.21