Earnings Per Share

3 Months Ended

Nov. 30, 2012

Earnings Per Share [Abstract]

Earnings Per Share [Text Block]

Note 9. Common Stock Subscriptions Receivable

As of November 30, 2012, the Company has the following stock subscription agreements outstanding all of which are due from a related party:

2005 Agreements

Material terms of the subscription agreements received by the Company on December 30, 2005 for 4,733,333 restricted common shares at $0.75 per share (total value of $3,550,000) are as follows:

·Payment is due in full in 60 months.

·At 24 months, the Company can demand at its option, monthly 1/36 payments on the subscription agreement.

·The Company has the option to charge simple annual interest of up to 4%.

·The Company will provide downside protection of up to 30% of the stock price upon conversion.

The outstanding balance owed on the 2005 subscription agreements at November 30, 2012 is $0.

2007 Agreements

On October 5, 2007, the Company received subscriptions for 1,300,000 restricted common shares at $2.50 per share (total value of $3,250,000).  Significant terms of the original subscription agreement are as follows:

·The price per share of $2.50 was based on the closing price on October 4, 2007.

·At 24 months, 1/36 payments are due monthly.

·The Company, at its option, may call up to 1/12 of the gross receivable per month if the preceding 30 day average trading price is at or above $7.00 a share with minimum trading volume of 5,000 shares per day.

·If the purchaser sells these common shares, the purchaser shall be entitled to an amount equal to 200% of the original purchase price of each share and the Company shall be entitled to 50% of any additional net sales proceeds from the stock sale.

On February 25, 2010, due to the economic downturn and the market value decline of the Company’s stock, which was trading below $2.50 per share, the Company amended the pricing terms of the subscription agreements received by the Company on October 5, 2007.  The amendment changed the following significant terms of the subscription agreement:

The parties agree that the Initial Pricing terms in the Confidential Binding Term Sheet dated October 5, 2007 of the Agreement will be amended to state as follows:

1.The Subscriber offers to purchase shares of the Company for $0.75 per share.  After the price adjustment, the revised total value of this subscription agreement is $975,000.

The following other provisions of the Initial Pricing and Final Pricing terms in the Confidential Binding Term Sheet dated October 5, 2007 of the Agreement will be deleted, and are not enforceable by either party:

·Beginning October 5, 2009, and 1/36 payments are due each month thereafter on the 5^th of every month.

·The Company at its option may call up to 1/12 of the (gross) receivable note per month if the preceding 30 day average trading price is at or above $7.00 a share.  Minimum trading volume must be 5,000 shares a day.

·As total consideration for the purchase and sale of the Company’s stock, purchaser shall ultimately pay to the Company the following amount (the “Purchase Price”):

A.Purchaser shall first be entitled to an amount equal to 200% of the face amount of each share.

B.After the purchaser receives the amount in A above, the Company shall be entitled to 50% of any additional net sales proceeds of the stock.  Net sales proceeds shall mean the gross proceeds received from the sale of the stock, less reasonable brokerage commissions.

C.Final adjusted net sales proceeds will be wired to the Company within 7 days from the final settlement of the sale of stock sold.

The outstanding balance owed on the revised 2007 subscription agreements at November 30, 2012 is $799,154.

2010 Agreement

Material terms of the subscription agreement received by the Company on June 22, 2010, for 400,000 restricted common shares at $0.75 per share (total value of $300,000) are as follows:

·Payment is due in full in 60 months.

·At 24 months, the Company can demand at its option, monthly 1/36 payments on the subscription agreement.

·The Company has the option to charge simple annual interest of up to 4%.

·The Company will provide downside protection of up to 30% of the stock price upon conversion.

The outstanding balance owed on the 2010 subscription agreement at November 30, 2012 is $300,000.

Summary

For the nine months ended November 30, 2012, the Company received stock subscription payments of $200,500 and as of November 30, 2012, the Company had related party stock subscriptions receivable aggregating $1,099,154 for the 2007 and 2010 agreements.

The following tables summarize information about the stock subscription receivable:

Receivable balance at February 29, 2008	$   5,030,795
Cash collected	(523,832)
Receivable balance at February 28, 2009	4,506,963
Cash collected	(337,500)
2007 Subscription agreement pricing revised (1)	(2,275,000)
Receivable balance at February 28, 2010	1,894,463
New subscription agreement (2)	300,000
Cash collected	(771,809)
Receivable balance at February 28, 2011	1,422,654
Cash collected	(123,000)
Receivable balance at February 29, 2012	1,299,654
Cash collected	(50,000)
Receivable balance at May 31, 2012	1,249,654
Cash collected	(80,000)
Receivable balance at August 31, 2012	1,169,654
Cash collected	(70,500)
Receivable balance at November 30, 2012	$   1,099,154
Summary of outstanding subscriptions:
2005 subscriptions	$                  -
2007 subscriptions	799,154
2010 subscriptions	300,000
	$   1,099,154

(1)Amendment to the terms of the subscription agreements received by the Company on October 5, 2007 for 1,300,000 restricted common shares reducing the price paid per share from $2.50 to $0.75.

(2)New subscription agreement received on June 22, 2010.

The Company has not exercised its rights, per the 2005 subscription agreements, to demand monthly 1/36 payments or to charge up to 4.0% interest on the subscription amounts outstanding and they have provided no “downside protection” to the subscribers.  The “downside protection” in the terms for the 2005 subscription agreements requires the Company to reimburse the subscription holder up to 30% of the $0.75 purchase price, or $0.225, if the market price of the stock is below $0.75 when converted. The protection may be provided in additional shares if necessary.  For the nine month period ended November 30, 2012, there was no downside protection provided because the stock price did not go below $0.75 when converted.  The subscription agreements do not define the term “when converted.”  The Company has taken the position that if at the time that a purchaser makes a payment in full for the shares under a subscription agreement and the closing price of the shares of the Company’s stock is less than $0.75, the shareholder would be entitled to up to 30% additional shares, depending on the trading share price.  As of April 2012, the 2005 subscription agreements were paid for in their entirety and any downside protection ceased.

Note 10. Earnings (Loss) Per Share

The Company computes earnings per share using two different methods, basic and diluted, and presents per share data for all periods in which statements of operations are presented. Basic earnings per share are computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding. Diluted earnings per share are computed by dividing net income (loss) by the weighted average number of common stock and common stock equivalents outstanding.

The following tables provide a reconciliation of the numerators and denominators used in calculating basic and diluted earnings (loss) per share for the three and nine month periods ended November 30, 2012 and 2011:

	Three months ended
	November 30,
	2012	2011
Basic earnings (loss) per share calculation:
Net loss to common shareholders	$             (260,611)	$         (3,286,939)
Weighted average of common shares outstanding	29,165,599	29,011,928
Basic net loss per share	$                   (0.01)	$               (0.11)
Diluted earnings (loss) per share calculation:
Net loss to common shareholders	$             (260,611)	$        (3,286,939)
Weighted average of common shares outstanding	29,165,599	29,011,928
Stock options (1)	-	-
Warrants (2)	-	-
Diluted weighted average common shares outstanding	29,165,599	29,011,928
Diluted net loss per share	$                   (0.01)	$               (0.11)

	Nine months ended
	November 30,
	2012	2011
Basic earnings (loss) per share calculation:
Net loss to common shareholders	$          (1,040,205)	$         (3,929,407)
Weighted average of common shares outstanding	29,141,649	28,630,481
Basic net loss per share	$                   (0.04)	$               (0.14)
Diluted earnings (loss) per share calculation:
Net loss to common shareholders	$         (1,040,205)	$        (3,929,407)
Weighted average of common shares outstanding	29,141,649	28,630,481
Stock options (1)	-	-
Warrants (2)	-	-
Diluted weighted average common shares outstanding	29,141,649	28,630,481
Diluted net loss per share	$                   (0.04)	$               (0.14)
(1)	At November 30, 2012 and 2011, there were outstanding stock options equivalent of 3,920,000 and 4,720,000 common shares, respectively.  The stock options are anti-dilutive at November 30, 2012 and 2011 and therefore have been excluded from diluted earnings (loss) per share.
(2)	At November 30, 2012 and 2011, there were outstanding warrants equivalent to 980,410 and 1,089,077 common shares, respectively.   The warrants are anti-dilutive at November 30, 2012 and 2011 and therefore have been excluded from diluted earnings (loss) per share.