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STOCK WARRANTS AND OPTIONS

3 Months Ended

Nov. 30, 2011

Notes to Financial Statements

STOCK WARRANTS AND OPTIONS

The Company has granted 5,933,753 stock warrants in connection with private placements. The Company has accounted for these warrants as equity instruments in accordance with EITF 00-19 (ASC 815-40), Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock, and as such, were classified in stockholders’ equity. The Company has estimated the fair value of the warrants issued in connection with the private placements at $3,045,860 as of the grant dates using the Black-Scholes option pricing model.

The Company has also granted 2,457,500 stock options to employees. The Company has estimated the fair value of the options as of the grant dates at $1,687,423 using the Black-Scholes option pricing model. Compensation expense is being recognized over the vesting periods of the options which range from immediate vesting to vesting over four years. Fifteen percent of total issued and outstanding common shares are available for stock options.

The Company granted 335,000 new options during the three months ended November 30, 2011, at an exercise price of the $0.80.

Key assumptions used by the Company are summarized as follows:

		Private Placement Warrants				Employee Stock Options
Stock Price			$0.55-$1.05				$0.75-$2.20
Exercise Price			$0.80-$1.50				$.80-$1.25
Expected volatility			69.10	%			69.10	%
Expected dividend yield			0.00	%			0.00	%
Risk-free rate			2.62	%			2.0-3.37%
Vesting period			—				0-4 years
Expected term (in years)			3-5 Years				7

A Stock Price of $1.00 to $1.05 was used in valuing the warrants and a range of $0.75-$2.20 for valuing the options. The stock price was based on the per share issuance prices from a recent unrelated third party private placements. Volatility was computed based on the average volatility of similar companies in the wind turbine business. The risk-free interest rate is the Treasury Constant Maturity Rate on the date of grant for a period equivalent to the expected term of the instrument. The expected term is the same as the contractual term for the above valuations.

The warrants issued in connection with the private placement were valued at $3,045,860 and have been accounted for as an equity transaction. Options issued to employees were classified as compensation expense for the three months ended November 30, 2011. Stock option expense recognized in net earnings amounted to $86,836 and 394,768 for the three and nine months ended November 30, 2011, respectively. As of November 30, 2011, there was $829,404 of unrecognized compensation expense related to non-vested share awards that we expect to recognize over a weighted average period of 3.5 years.

Tabular disclosure of warrants or rights issued. Warrants and rights outstanding are derivative securities that give the holder the right to purchase securities (usually equity) from the issuer at a specific price within a certain time frame. Warrants are often included in a new debt issue to entice investors by a higher return potential. The main difference between warrants and call options is that warrants are issued and guaranteed by the company, whereas options are exchange instruments and are not issued by the company. Also, the lifetime of a warrant is often measured in years, while the lifetime of a typical option is measured in months. Disclose the title of issue of securities called for by warrants and rights outstanding, the aggregate amount of securities called for by warrants and rights outstanding, the date from which the warrants or rights are exercisable, and the price at which the warrant or right is exercisable.

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