Equity

3 Months Ended

Aug. 31, 2012

Stockholders' Equity Note [Abstract]

Stockholders' Equity Note Disclosure [Text Block]

Note 5. Stockholders’ Equity

Stock Transactions

On March 19, 2012, the Company entered into a stock purchase agreement and issued 75,000 shares of restricted common stock at a per share price of $1.00, for total cash proceeds of $75,000. 

On May 15, 2012, the Company issued 21,775 restricted common shares at $0.40 per share, valued at $8,710, to six directors of the Company for payment of director fees.  The restricted common shares were valued based on the market price at time of issue.

On August 15, 2012, the Company issued 15,277 restricted common shares at $0.55 per share, valued at $8,403, to six directors of the Company for payment of director fees and 909 restricted common shares at $0.55 per share, valued at $500, as compensation for the interim CFO/President.  The restricted common shares were valued based on the market price at time of issue.

Stock Warrants

As of August 31, 2012, the Company has a total of 1,092,410 stock purchase warrants outstanding with an exercise price of $4.00.  The warrants expire two years from their date of issuance.  The weighted average remaining exercise period as of August 31, 2012 is 0.74 years.

Other

On December 3, 2010, the Company signed a drawdown equity financing agreement (“Drawdown Agreement”) with Auctus Private Equity Fund, LLC (“Auctus”).  In connection with the Drawdown Agreement, in April 2011, the Company registered 3,000,000 shares of common stock with the SEC under the Securities Act of 1933 and at its discretion, has the right to sell up to the registered shares of common stock to Auctus over a thirty six month period for maximum aggregated consideration of up to $10,000,000, subject to the following terms and conditions.

·The maximum advance amount available to the Company is limited to the greater of $150,000 or 200% of the average daily volume based on the 10 days preceding the Company’s notice requesting a draw.

·Auctus’ purchase price per common share will be 94% of the lowest closing volume weighted average price (“VWAP”) of the Company’s common stock during the five trading days immediately following the Company’s delivery of notice to Auctus.

·At its option, the Company can establish a floor price under which Auctus may not sell the shares.  The floor price shall be 75% of the closing VWAP for the 10 days prior to the notice requesting a draw.  Auctus must cease selling any shares purchased in connection with the Drawdown Agreement if the price falls below the established floor price.  The Company, at its discretion, may waive the floor price and allow Auctus to sell its shares below the floor price.

·In no event can the number of shares owned by Auctus exceed 4.99% of the then outstanding shares of the Company’s common stock.  As of August 31, 2012, this would translate into maximum ownership by Auctus of approximately 1,455,000 shares of the Company’s common stock.

In April 2011, the Company issued a drawdown notice to Auctus for $50,000.  Auctus honored $2,108 on April 27, 2011 of the notice, but has refused to honor the balance.  The Company considers Auctus to be in breach of the Drawdown Agreement.

Note 6. Stock Options

The Company has one stock option plan called The 2006 Employee Stock and Option Plan (the "Plan"). As of August 31, 2012, an aggregate of 5,000,000 shares of common stock may be granted under this plan as determined by the Board of Directors. The stock options may be granted to directors, officers, employees, consultants and advisors of the Company.  Options granted under the Plan are non-qualified stock options and have exercise prices and vesting terms established by the Board of Directors at the time of each grant.  Vesting terms of the outstanding options range from immediate to four years from the grant date anniversary.  The terms of the options range from five to ten years from the date of grant.

For the six months ended August 31, 2012, the Company granted stock options to an officer/director allowing for the purchase of up to an aggregate of 600,000 shares of common stock.  The stock option agreement has a term of 10 years and the options vest as follows: 200,000 on March 19, 2012, 100,000 on March 19, 2013, 100,000 on March 19, 2014, 100,000 on March 19, 2015 and 100,000 on March 19, 2016.  The fair value of the Company’s stock options have been estimated using the Black-Scholes pricing model, which requires assumptions as to expected dividends, the options expected life, volatility and risk-free interest rate at the time of the grant.  The value of the portion of the award that is ultimately expected to vest is recognized as expense on a straight-line basis over the requisite vesting periods of each tranche in the Company’s consolidated statements of operations.

For stock options granted during the six months ended August 31, 2012, we utilized the following key assumptions in computing fair value using the Black-Scholes option-pricing model:

	March 19,
	2012
Weighted-average volatility	115%
Expected dividends	None
Expected term (in years)	5
Weighted-average risk-free interest rate	1.20%
Weighted-average fair value of options granted	$0.32

The total fair value of the stock options granted by the Company for the six months ended August 31, 2012 was $194,580.

During the three months ended August 31, 2012, 200,000 stock options were canceled due to the resignation of a Director and the Company reversed $9,499 of stock compensation expense previously recognized in the current year.  Total stock compensation expense for all option grants was $26,041 and $78,110 for the three months ended August 31, 2012 and 2011, respectively, and $130,309 and $148,566 for the six months ended August 31, 2012 and 2011, respectively.  This expense is included in selling, general and administrative expense. As of August 31, 2012, the Company has not recorded any tax benefit from this non-cash expense due to the Company having a full valuation allowance against its deferred tax assets.  The compensation expense impacted the three months ended August 31, 2012 and 2011basic (loss) per common share by $(0.001) and $(0.003), respectively, and the six months ended August 31, 2012 and 2011basic (loss) per common share by $(0.004) and $(0.005), respectively.  There remains $120,218 of total unrecognized compensation expense, which is expected to be recognized over future periods through March 31, 2016.

The following table summarizes information about the Company’s stock options:

	Number of Options	Weighted Average Exercise Price	Weighted Average Remaining Contract Life (years)		Aggregate Intrinsic Value (1)
Outstanding - February 29, 2012	4,170,000	$  1.313		-	-
Granted	600,000	1.000		-	-
Canceled or expired	(200,000)	1.720		-	-
Exercised	-	-		-	-
Outstanding – August 31, 2012	4,570,000	$  1.251		7.66	-
Exercisable at August 31, 2012	3,970,000	$  1.252		7.69	-

(1)The intrinsic value of an option is the amount by which the fair value of the underlying stock exceeds its exercise price.