Capital stock

9 Months Ended

Oct. 31, 2012

Capital stock [Text Block]

NOTE 6 – Capital stock

a) Common Shares

Our common shares are all of the same class, are voting and entitle stockholders to receive dividends as defined. Upon liquidation or wind-up, stockholders are entitled to participate equally with respect to any distribution of net assets or any dividends that may be declared.

i) In August and September 2012, we sold 6,156,153 units, at prices ranging from $0.027 to $0.031 per unit, to investors for gross proceeds of $180,000. Each unit consisted of one common share of our company and one non-transferable common stock purchase warrant. Each common stock purchase warrant entitles the investors to purchase one additional common share of our company at prices ranging from $0.038 to $0.044 until August 29, 2015. The investors are U.S. Persons and are accredited investors and in issuing securities to the investors we relied on the exemption from the registration requirements of the Securities Act of 1933 provided by Rule 506 of Regulation D promulgated thereunder.

ii) In May and July 2012, we sold 4,859,073 units, at prices ranging from $0.027 to $0.033 per unit, to investors for gross proceeds of $150,004. Each unit consisted of one common share of our company and one non-transferable common stock purchase warrant. Each common stock purchase warrant entitles the investors to purchase one additional common share of our company at prices ranging from $0.027 to $0.047 until July 23, 2015. The investors are U.S. Persons and are accredited investors and in issuing securities to the investors we relied on the exemption from the registration requirements of the Securities Act of 1933 provided by Rule 506 of Regulation D promulgated thereunder.

iii) In May and July 2012, investors exercised 19,861,870 of the May 2007 common stock purchase warrants using the cashless exercise provision. We issued 18,033,814 shares of common stock and cancelled 1,828,056 common stock purchase warrants pursuant to the cashless exercise provision. No cash proceeds were received. We issued these shares pursuant to an exemption from registration set out in Section 4(2) of the Securities Act of 1933. The remaining 759,160 common stock purchase warrants from May 2007 expired on May 11, 2012 without exercise.

iv) In March 2012, we sold 2,000,000 units at a price of $0.02844 per unit to one investor for gross proceeds of $56,880. Each unit consisted of one common share of our company and one non-transferable common stock purchase warrant. Each common stock purchase warrant entitles the investor to purchase one additional common share of our company at a price of $0.03982 until March 14, 2015. The investor is a U.S. Person and is an accredited investor and in issuing securities to the investor we relied on the exemption from the registration requirements of the Securities Act of 1933 provided by Rule 506 of Regulation D promulgated thereunder.

v) In March 2012, one investor exercised 84,615 of the May 2007 common stock purchase warrants using the cashless exercise provision. The cashless exercise provision allows the investor, if the fair market value of one share of common stock is greater than the exercise price, to elect to receive shares equal to the value of the warrant less a portion of the warrant that is cancelled using a specific formula. We issued 21,757 shares of common stock and cancelled 62,858 common stock purchase warrants pursuant to the cashless exercise provision. No cash proceeds were received. We issued these shares pursuant to an exemption from registration set out in Section 4(2) of the Securities Act of 1933.

vi) In February 2012, we sold 2,209,596 units at a price of $0.03168 per unit to one investor for gross proceeds of $70,000. Each unit consisted of one common share of our company and one non-transferable share purchase warrant. Each share purchase warrant entitles the investor to purchase one additional common share of our company at a price of $0.04435 until February 23, 2015. The investor is a U.S. Person and in issuing securities to the investor we relied on the exemption from the registration requirements of the Securities Act of 1933 provided by Rule 506 of Regulation D promulgated thereunder.

vii) In February 2012 we sold 2,000,715 units at a price of $0.02799 per unit to one investor for gross proceeds of $56,000. Each unit consisted of one common share of our company and one non-transferable share purchase warrant. Each share purchase warrant entitles the investor to purchase one additional common share of our company at a price of $0.03919 until February 3, 2015. The investor is a U.S. Person and in issuing securities to the investor we relied on the exemption from the registration requirements of the Securities Act of 1933 provided by Rule 506 of Regulation D promulgated thereunder.

viii) In February 2012 one investor exercised 2,646,199 of the August 2009 common stock purchase warrants using the cashless exercise provision. The cashless exercise provision allows the investor, if the fair market value of one share of common stock is greater than the exercise price, to elect to receive shares equal to the value of the warrant less a portion of the warrant that is cancelled using a specific formula. We issued 2,500,000 shares of common stock and cancelled 146,199 common stock purchase warrants pursuant to the cashless exercise provision. No cash proceeds were received. We issued these shares pursuant to an exemption from registration set out in Section 4(2) of the Securities Act of 1933.

ix) On January 19, 2012, we entered into an investment agreement (the "Investment Agreement") with Fairhills Capital Offshore Ltd., a Cayman Islands exempted company ("Fairhills"). Pursuant to the terms of the Investment Agreement, Fairhills committed to purchase, in a series of purchase transactions ("Puts") up to $10,000,000 of our common stock over a period of up to 36 months.

The amount that is entitled to be requested with each Put delivered to Fairhills is equal to 200% of the average daily volume (U.S. market only) of the common stock for the 10 trading days prior to the applicable notice date. Our common stock will be valued at a 27.5% discount from the weighted average trading price of our stock for the 5 trading days before Fairhills Capital receives our notice of sale. We will be unable to deliver an additional Put until a closing of a previous Put has been completed. Pursuant to the Investment Agreement, the closing of a Put shall be no more than 7 trading days following the delivery of a Put. Upon each closing of a Put, we shall deliver to Fairhills certificates representing the shares. Within one business day after receipt of such certificate, Fairhills shall deliver to us the purchase price to be paid for such shares.

On May 1, 2012, we entered into an amendment to the Investment Agreement (the "Amendment"). Pursuant to the Amendment, the Investment Agreement will only expire upon any of the following events: (i) when the Investor has purchased an aggregate of $10,000,000 in the Common Stock of the Company pursuant to the Investment Agreement; or (ii) on the date which is 36 months after the effective date of the Investment Agreement; or (iii) at such time that the Registration Statement registering the shares of common stock contemplated by the Investment Agreement is no longer in effect. In addition, the Company may terminate the Investment Agreement upon 30 days written notice. The obligations of Fairhills under the Investment Agreement are non-transferable.

In connection with the Investment Agreement, we also entered into a registration rights agreement with Fairhills. Pursuant to this registration rights agreement, we registered with the Securities and Exchange Commission 185,000,000 shares of the common stock underlying the Investment Agreement.

At October 31, 2012 and subsequently, we have issued 29,416,467 and 15,981,823 shares, respectively, of common stock for gross proceeds of $800,000 and $225,000, respectively, related to this financing agreement. As a result, in the future we would potentially be eligible to receive up to $8,975,000 on the issuance of an additional 139,601,710 shares. We are currently authorized to issue 1,250,000,000 shares of our common stock. Fairhills has agreed to refrain from holding an amount of shares which would result in Fairhills owning more than 4.99% of the then-outstanding shares of our common stock at any one time, or 62,375,000 shares. At an assumed purchase price under the Investment of $0.0109 (equal to 72.5% of the closing price of our common stock of $0.015 on December 14, 2012), we will be able to receive up to $1,518,169 in gross proceeds. (See Note 11 for information regarding an assignment of this agreement by Fairhills to Deer Valley Management, LLC, a related entity, subsequent to October 31, 2012.)

b) Incentive Stock Options

During the nine months ended October 31, 2012 there were 2,500,000 vested incentive stock options that expired, 207,875 that were forfeited, and no stock options granted. The expired and forfeited options had a weighted average exercise price of $0.038 and $0.728, respectively, per option. At October 31, 2012 there were 903,500 non-qualified stock options outstanding with a weighted average exercise price of $1.429 per option; of those options 841,000 are exercisable. At October 31, 2012 there were 90,552,500 incentive stock options outstanding with a weighted average exercise price of $0.046 per option; of those options 85,427,500 are exercisable.

c) Share Purchase Warrants

As of October 31, 2012, there were 86,700,230 whole share purchase warrants outstanding and exercisable. The warrants have a weighted average remaining life of 2.2 years and a weighted average exercise price of $0.058 per whole warrant for one common share. Whole share purchase warrants outstanding at October 31, 2012 are as follows:

	Number of whole share			Weighted average exercise
	purchase warrants			price per share
Outstanding, January 31, 2012	92,922,691		$	0.053
Issued	17,225,537			0.041
Exercised	(22,592,684	)		(0.003	)
Expired	(855,314	)		(0.020	)
Outstanding, October 31, 2012	86,700,230		$	0.058
Exercisable, October 31, 2012	86,700,230		$	0.058