Fair value of financial instruments

9 Months Ended

Oct. 31, 2012

Fair value of financial instruments [Text Block]

NOTE 10 – Fair value of financial instruments

Our financial instruments consist of cash and cash equivalents, accounts payable, accrued liabilities, convertible notes payable, notes payable, and warrant liability. It is management's opinion that we are not exposed to significant interest, currency or credit risks arising from these financial instruments. With the exception of the warrant liability, the fair value of these financial instruments approximates their carrying values based on their short maturities or for long-term debt based on borrowing rates currently available to us for loans with similar terms and maturities, which represents a Level 3 input. Gains and losses recognized on changes in estimated fair value of the warrant liability are reported in other income (expense) as gain (loss) on change in fair value.

We estimate the fair value of the warrant liability using level 3 inputs and the Black-Scholes valuation model. We use historical volatility as a method to estimate expected volatility. At October 31, 2012 and January 31, 2012 we had nil and 622,138, respectively, whole share purchase warrants outstanding that contain a full ratchet down anti-dilution provision which is triggered if we enter into any issuance priced lower than $0.02 per common share. At October 31, 2012 and January 31, 2012 we had 2,500,000 whole share purchase warrants outstanding that contain a full ratchet down anti-dilution provision which is triggered if we enter into any lower priced issuance than $0.0264 per common share. We used the following assumptions to estimate the fair value of the warrant liability at October 31, 2012 and January 31, 2012:

		Expected		Risk-free
	Expected	dividend	Expected	interest
Description	volatility	yield	term	rate
Warrant liability at        October 31, 2012	135.0%	0%	3.83 years	0.49%
Warrant liability at        January 31, 2012	127.6%	0%	4.59 years	0.71%

				Fair value measurements at reporting date using:
				Quoted prices in				Significant
				active markets for		Significant other		unobservable
				identical liabilities		observable inputs		inputs
Description		October 31, 2012		(Level 1)		(Level 2)		(Level 3)
Warrant liability	$	47,540	$	-	$	-	$	47,540

		Fair value measurements using significant
		unobservable inputs (Level 3):
Description		Warrant liability
Balance, January 31, 2012	$	53,948
Total gain		(6,408	)
Purchases, issuances and settlements		-
Transfers in or out of Level 3		-
Balance, October 31, 2012	$	47,540