t62786_10qsba2.htm

Visual Management Systems, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Condensed Consolidated Statement of Operations
Three Months Ended August 31, 2007
	As previously reported			As restated			Effect of Restatement

Revenues - net	$	2,713,645		$	1,775,649		$	(937,996	)

Cost of revenues		1,129,430			1,149,534			20,104

Gross profit		1,584,215			626,115			(958,100	)

Operating expenses		2,764,784			2,210,528			(554,256	)

Loss from operations		(1,180,569	)		(1,584,413	)		(403,844	)

Other (income) expenses
Interest income		(234	)		(234	)		-
Interest expense		20,561			46,161			25,600
		20,327			45,927			25,600

Net loss	$	(1,200,896	)	$	(1,630,340	)	$	(429,444	)

Deemed dividend on convertible preferred stock	$	-		$	635,582		$	635,582

Net Loss Applicable to common stockholders	$	(1,200,896	)	$	(2,265,922	)	$	(1,065,026	)


Per share data (basic and diluted)	$	(0.13	)	$	(0.34	)	$	(0.21	)

Weighted average common shares outstanding		9,053,126			6,660,044			(2,393,082	)

Visual Management Systems, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Condensed Consolidated Statement of Operations
Six Months Ended August 31, 2007
							Effect of
	As previously reported			As restated			Restatement


Revenues - net	$	3,883,450		$	3,235,004		$	(648,446	)

Cost of revenues		1,486,352			1,938,046			451,694

Gross profit		2,397,098			1,296,958			(1,100,140	)

Operating expenses		4,389,029			3,824,140			(564,889	)

Loss from operations		(1,991,931	)		(2,527,182	)		(535,251	)

Other (income) expenses
Interest income		(234	)		(234	)		-
Interest expense		25,038			191,535			166,497
		24,804			191,301			166,497

Net loss	$	(2,016,735	)	$	(2,718,483	)	$	(701,748	)


Deemed Dividend on Convertible Preferred Stock	$	-		$	635,582		$	635,582

Net Loss Applicable to common stockholders	$	(2,016,735	)	$	(3,354,065	)	$	(1,337,330	)


Per share data (basic and diluted)	$	(0.23	)	$	(0.52	)	$	(0.29	)

Weighted average common shares outstanding		8,906,600			6,473,907			(2,432,693	)

Visual Management Systems, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Condensed Consolidated Statement of Cash Flows
Six Months Ended August 31, 2007

	As previously reported			As restated			Effect of
							Restatement

Cash flows from operating activities
Net loss	$	(2,016,735	)	$	(2,718,483	)	$	(701,748	)
Adjustments to reconcile net loss to net cash used by operating activities
Depreciation and amortization		41,404			41,404			-
Stock-based compensation		381,184			477,078			95,894
Non-cash interest					177,232			177,232
Change in deferred revenue		152,447			-			(152,447	)
(Increase) decrease in operating assets
Accounts receivable		148,033			(154,919	)		(302,952	)
Inventory		(1,024,376	)		(162,858	)		861,518
Prepaid expenses and other assets		(66,541	)		(114,574	)		(48,033	)
Other assets		(40,036	)		(7,090	)		32,946
Increase (decrease) in operating liabilities
Bank overdraft					29,373			29,373
Accounts payable		969,123			499,635			(469,488	)
Accrued expenses and other current liabilities		167,836			194,033			26,197
Sales tax payable		34,902			2,322			(32,580	)
Customer deposits					34,952			34,952
Net cash used by operating activities		(1,252,759	)		(1,701,895	)		(449,136	)

Cash flows from investing activities
Purchases of property and equipment		(75,140	)		(75,140	)		-

Cash flows from financing activities
Repayment of capital leases		-			-			-
Proceeds from convertible notes payable		125,000			112,500			(12,500	)
Proceeds from the sale of common stock		108,355			373,105			264,750
Proceeds from the issuance of preferred stock, net of issuance
costs of $250,148 in 2007		995,935			1,265,500			269,565
Principal repayments of long-term debt		(67,284	)		(52,230	)		15,054
Proceeds from loans payable - stockholders		17,956			17,956			-
Net cash provided by financing activities		1,179,962			1,716,831			536,869

Decrease in cash		(147,937	)		(60,204	)		87,733

Cash
Beginning of period		189,089			60,204			(128,885	)
End of period	$	41,152		$	-		$	(41,152	)

Item 2. Management’s Discussion and Analysis or Plan of Operation

Forward-Looking Statements

This Form 10-QSB/A-2 includes "forward-looking statements" within the meaning of the "safe-harbor" provisions of the Private Securities Litigation Reform Act of 1995. Such statements are based on management's current expectations and are subject to a number of factors and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements, including our ability to raise capital, national and local economic conditions, conditions and trends in the video surveillance and security industries in general, changes in interest rates, commercial acceptance of our products, the effect of government regulation on our operations and other factors described from time to time in filings with the Securities and Exchange Commission.

Overview

On July 17, 2007, we acquired all of the outstanding capital stock of Visual Management Systems Holding, Inc., a New Jersey corporation, in connection with the merger of our wholly owned subsidiary with and into Visual Management Systems Holding, Inc. In connection with the merger, we changed our corporate name from Wildon Productions, Inc. to Visual Management Systems, Inc. and the former shareholders of Visual Management Systems Holding, Inc. received shares of our common stock representing approximately 76.5% of our outstanding common stock after giving effect to the merger. In addition, our board of directors was reconstituted at the effective time of the merger with designees of Visual Management Systems Holding, Inc. replacing our then current board of directors. Further, at the effective time of the merger, we abandoned our prior business plan and the operations of Visual Management Systems Holding, Inc. acquired as a result of the merger became our sole line of business. The merger transaction was therefore accounted for as a reverse acquisition with Visual Management Systems Holding, Inc. as the acquiring party and Visual Management Systems, Inc. (formerly Wildon Productions, Inc. ) as the acquired party. Accordingly, when we refer to our business and financial information relating to periods prior to the merger, we are referring to the business and financial information of Visual Management Systems Holding, Inc., unless the context otherwise requires. The following discussion and analysis should be read in conjunction with the financial statements, including the notes thereto and other information presented in this report.

Simultaneously with the merger, we completed the initial closing of a private placement of units consisting of shares of Series A Convertible Preferred Stock and common stock purchase warrants. This closing, together with additional closings which took place in July and August 2007, resulted in gross proceeds of $1,515,648 and net proceeds, after deduction of commissions and expenses paid to the placement agent, of approximately $1,265,500.

Results of Operations for the Three Months Ended August 31, 2007

Net Revenues. Revenues increased 69% to $ 1,775,649 for the quarter ended August 31, 2007 from $1,048,252 for the quarter ended August 31, 2006 primarily as a result of an expansion of our customer base which was due, in part, to an increase in our sales force.

Gross Profit. Gross profit margin increased by $91,897 to $626,115 for the quarter ended August 31, 2007 compared to $534,218 for the quarter ended August 31, 2006 primarily as a result of increased revenues. Gross profit as a percentage of revenues decreased to 35% for the three months ended August 31, 2007 compared to 51.0% for the comparable period of 2006 due to additional investment in manpower and ancillaries needed to support projected revenue increases in 2007.

Operating Expenses. Operating expenses increased 151% from $879,865 for the quarter ended August 31, 2006 to $2,210,528 for the quarter ended August 31, 2007 as a result of the building of infrastructure to support projected sales volume increases, increased back office support staff and facilities needed to accommodate increased revenues, employee stock compensation expense, and the increased costs associated with the reverse acquisition transaction that took place in July 2007.

Interest Expense. Interest expense associated with borrowings used to finance investments in infrastructure, for the three months ended August 31, 2007, was not material as a result of having taken advantage of seasonal offerings of below prime rates and capital initiatives to minimize interest expense.

Net Loss. As a result of the factors described above, we incurred a net loss of $1,630,340 for the three months ended August 31, 2007 compared to a net loss of $365,552 for the three months ended August 31, 2007.

Results of Operations for the Six Months Ended August 31, 2007

Net Revenues. Revenues increased 65% to $ 3,235,004 for the six months ended August 31, 2007 from $1,957,553 for the six months ended August 31, 2006 primarily as a result of an expansion of our customer base which was due, in part, to an increase in our sales force.

Gross Profit. Gross proft increased by $296,309 to $1,296,958 for the six months ended August 31, 2007 compared to $1,000,649 for the six months ended August 31, 2006 primarily as a result of increased revenues. Gross margin as a percentage of revenues decreased to 40.1% for the six months ended August 31, 2007 compared to 51.1% in the comparable period of 2006 due to additional investment in manpower and ancillaries needed to support projected revenue increases in 2007.

Operating Expenses. Operating expenses increased 126% from $1,689,093 for the six months ended August 31, 2006 to $3,824,140 for the six months ended August 31, 2007 as a result of the building of infrastructure to support projected sales volume increases, increased back office support staff and facilities needed to accommodate increased revenues, employee stock option expense as well as the increased costs associated with the reverse acquisition transaction that took place in July 2007.

Interest Expense. Interest expense associated with borrowings used to finance investments in infrastructure, for the six months ended August 31, 2007, increased from $29,905 to $191,535 as a result of a beneficial conversion feature on convertible debt amortized to interest expense, and amortization of placement agent costs related to financings.

Net Loss. As a result of the factors described above, we incurred a net loss of $2,718,483 for the six months ended August 31, 2007 compared to a net loss of $718,252 for the six months ended August 31, 2007.

Liquidity and Capital Resources

General. Expansion of our operations required increased expenditures for marketing and personnel. We encountered legal, accounting, filing and other professional costs associated with our reverse acquisition transaction completed in July 2007. We did not receive all of the anticipated benefit of the private placement offering that we conducted as the offering was not fully subscribed at August 31, 2007. As a result, our plan is to seek additional debt or equity financing from external sources so that we can continue to expand our business; however, no assurance can be given that we will be able to complete any such financing. Our management believes that funds currently on hand, funds provided by operations and borrowing availability will be sufficient to meet VMS’ needs for working capital for at least the next 12 months.

Cash Flows from Operating Activities. Net cash used in operating activities was $1,701,895 for the six months ended August 31, 2007 and $187,718 in the six months ended August 31, 2006. This was primarily the result of increased operating expenses, as discussed above, increases in inventory and receivables of approximately $317,000, offset by increases in operating payables and accrued expenses of approximately $695,000..

Cash Flows from Investing Activities. Net cash used in investing activities was $75,140 in the six months ended August 31, 2007 compared to $3,577 in the six months ended August 31, 2006, representing the purchase of property and equipment in both periods.

Cash Flows from Financing Activities. Net cash provided by financing activities was $1,716,831 for the six months ended August 31, 2007 and $249,312 during the six months ended August 31, 2006. Proceeds from the issuance of common stock, net of issuance costs, generated $373,105 and proceeds from issuance of preferred stock net of issuance costs generated $1,265,500 in the six months ended August 31, 2007

Commitments and Contingencies. We are a party to a $50,000 term loan agreement with JPMorgan Chase Bank, N.A. which provides for interest at a rate of 8.61% per annum and which is payable in equal monthly installments through October 2013. As of August 31, 2007, $44,316 was outstanding under the loan agreement.

As of August 31, 2007, we had outstanding $103,282 of borrowings under a loan agreement with Commerce Bank which provides for borrowing availability of up to $250,000 and is guaranteed by the U.S. Small Business Administration. Advances under the loan agreement bear interest at a rate of 7.23% per annum and are secured by substantially all of our assets.

We had $395,713 of auto loans outstanding as of August 31, 2007. These loans, which bear interest at rates ranging from 3.9% to 8.69%, mature at various dates through November 2012.

We enter into operating leases in the ordinary course of business for office and warehouse space and equipment. The outstanding leases are not material in terms of cash flow or total future minimum payments.

Sensitive Accounting Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The more significant of our estimates include but are not limited to inventory valuation charges and reliability of deferred income.

Item 3. Controls and Procedures

As of the end of the period covered by this Report on Form 10-QSB/A, we carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures. This evaluation was carried out under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, who then concluded at the time that our controls and procedures were effective as of the date of the evaluation. Disclosure controls and procedures are controls and other procedures that are designed to provide reasonable assurance that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to provide reasonable assurance that information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to management, including our Chief Executive Officer and Interim Chief Financial Officer as appropriate to allow timely decisions regarding required disclosure.

In November 2007 our management and the Audit Committee of our Board of Directors determined it was necessary to restate our Consolidated Statements of Operations for the three and six month periods ended August 31, 2007 due to the inclusion of inter-company sales in such items. Because of the required restatement of the Consolidated Statements of Operations, our Chief Executive Officer and Chief Financial Officer concluded that as of August 31, 2007, our disclosure controls and procedures were not effective based upon our misinterpretation of inter-company sales and revenues.

In April 2008, in conjunction with the audit of the Company’s financial statements as of and for the end of the year ended December 31, 2007, our management and the Audit Committee of our Board of Directors determined that it was necessary to again restate our financial statements for the three and six months ended August 31, 2007 and the three and none months ended September 30, 2007, as well as the pro forma financial statements submitted with our Form 8K/A filed with the SEC on January 31, 2008, due to deficiencies in our accounting practices relating to revenue recognition , inventory, cost of goods sold and equity.

These failures resulted from:


	•	misunderstandings of certain applications of Generally Accepted Accounting Principles (GAAP) and poor oversight and management of accounting staff and technology by our former Chief Financial Officer;

	•	deficiencies in our information technology relating to inventory control, revenue recognition, financial forecasting and the management of inter-company transactions;

	•	a lack of uniformity in accounting policies across subsidiaries which allowed and increased the number of undetected discrepancies in inter-company transactions;

	•	the lack of a formal documented closing process for period ends; and

	•	the lack of a formal process for developing recent period results or forward looking financial forecasts.

We have taken steps to improve our disclosure controls and procedures, including the replacement of our Chief Financial Officer, the hiring of in-house legal counsel, continued utilization of the oversight of an outside accounting firm in the preparation of our financial statements, retaining additional experienced independent accounting consultants, reorganizing our accounting department, obtaining and implementing new policies for the entry and maintenance of financial records, the development of processes for taking more frequent physical inventory, and obtaining approval from our Board of Directors to substantially upgrade our accounting software. In addition, we have engaged Withum Smith & Brown Global Assurance to evaluate our internal controls over financial reporting and assist us in developing internal controls which will enable us to comply with Section 404 of the Sarbanes-Oxley Act of 2002. Other than the changes described above, there have been no other changes in our disclosure controls and procedures that have materially affected, or are reasonably likely to materially affect, our disclosure controls and procedures.

Management will continue to scrutinize the steps we have detailed above to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms. If upon further evaluation the steps detailed above prove too slow or insufficient in their totality to meet that goal, we will develop a new plan which includes changes necessary to ensure that we comply with all relevant Commission rules and forms.

Our management does not expect that our disclosure controls or our internal controls over financial reporting will prevent all error and fraud. A control system, no matter how well conceived and operated, can provide only reasonable, but not absolute, assurance that the objectives of a control system are met. Further, any control system reflects limitations on resources, and the benefits of a control system must be considered relative to its costs. These limitations also include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. In addition, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of a control. A design of a control system is also based upon certain assumptions about potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and may not be detected.

EXHIBIT INDEX

Exhibit No.		Exhibits
31.1		Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2		Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1		Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2		Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	Visual Management Systems, Inc.
	(Registrant)

	By:	/s/ Jason Gonzalez
		Jason Gonzalez
		President and Chief Executive Officer
Dated: May 16, 2008

	By:	/s/ Frank Schmid
		Frank Schmid
		Interim Chief Financial Officer
Dated: May 16, 2008

[X ]	Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

	For the quarterly period ended August 31, 2007.

[ ]	Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

	For the transition period _____________ to ______________.

PART I.	Financial Information

	Item 1.	Financial Statements

		Condensed Consolidated Balance Sheets as of
		August 31, 2007 (Unaudited)	3

		Condensed Consolidated Statements of Operations (Unaudited) for the
		Three Months Ended August 31, 2007 and 2006	4

		Condensed Consolidated Statements of Operations (Unaudited) for the
		Six Months Ended August 31, 2007 and 2006	5

		Condensed Consolidated Statements of Cash Flows (Unaudited) for the
		Six Months Ended August 31, 2007 and 2006	6

		Notes to Condensed Consolidated Financial Statements	7

	Item 2.	Management’s Discussion and Analysis or
		Plan of Operation	16

	Item 3.	Controls and Procedures	19

PART II.	Other Information

Visual Management Systems, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
August 31, 2007

Assets	2007
	(restated)
Current assets
Cash	$	-
Accounts receivable		382,324
Inventory		464,181
Prepaid expenses		75,720
Total current assets		922,225

Property and equipment - net		569,153
Equipment under capital leases - net		66,080
Deposits and other assets		123,047
Intangible assets - net		11,428
		769,708

Total Assets	$	1,691,933

Liabilities and Stockholders' Deficit

Current liabilities
Bank overdraft	$	29,373
Accounts payable		1,326,987
Accrued expenses and other current liabilities		370,882
Customer Deposits		148,326
Sales tax payable		70,149
Current portion of long-term debt		83,806
Current portion of obligations under capital leases		20,778
Total current liabilities		2,050,301

Convertible notes payable		125,000
Long-term debt - net of current portion		459,325
Obligations under capital leases - net of current portion		40,130
Loans payable - stockholders		23,956

Stockholders' deficit
Preferred stock		1
Common stock		6,949
Additional paid-in-capital		6,261,230
Treasury stock, at cost		(150,000	)
Accumulated deficit		(7,124,959	)
Total stockholders' deficit		(1,006,779	)

Total Liabilities and Stockhoders Deficit	$	1,691,933

		Estimated
	Classification	Life (Years)

	Computer hardware and software	5 – 7
	Furniture and fixtures	7
	Machinery and equipment	5 – 7
	Vehicles	5

	2007


Term loans payable, collateralized by vehicles, due in monthly
installments ranging from $404 - $612, including interest at
fixed rates ranging from 3.90% - 8.69% and maturing through
November, 2012	$	395,713

Term loan payable – due in monthly installments of $794 including
interest at a fixed rate of 8.61% and maturing October 2013. The
loan is secured by the personal guarantee of the majority stock-
holder.		44,136

Small Business Association term loan due in monthly installments
of $2,282 including interest at a fixed rate of 7.23% and maturing
January 2012.		103,282

		543,131
Less: current portion		83,806

Long-term debt – net of current portion	$	459,325

Visual Management Systems, Inc. and Subsidiaries
Condensed Statements of Operations
For the Three Months Ended August 31, 2007 and 2006



	2007			2006
	(restated)

Revenues - net	$	1,775,649		$	1,048,252

Cost of revenues		1,149,534			514,034

Gross profit		626,115			534,218

Operating expenses		2,210,528			879,865

Loss from operations		(1,584,413	)		(345,647	)

Other (income) expenses
Other Income		(234	)		(13	)
Interest expense		46,161			19,918
		45,927			19,905

Net loss	$	(1,630,340	)	$	(365,552	)

Deemed dividend on convertible preferred stock	$	635,582		$	-

Net Loss applicable to common stockholders	$	(2,265,922	)	$	(365,552	)


Per share data (basic and diluted)	$	(0.34	)	$	(0.04	)

Weighted average common shares outstanding		6,660,044			9,790,000

Visual Management Systems, Inc. and Subsidiaries
Condensed Statements of Operations
For the Six Months Ended August 31, 2007 and 2006



		2007			2006
		(restated)

Revenues - net	$	3,235,004		$	1,957,553

Cost of revenues		1,938,046			956,904

Gross profit		1,296,958			1,000,649

Operating expenses		3,824,140			1,689,093

Loss from operations		(2,527,182	)		(688,444	)

Other (income) expenses
Interest income		(234	)		(97	)
Interest expense		191,535			29,905
		191,301			29,808

Net loss	$	(2,718,483	)	$	(718,252	)


Deemed dividend on convertible preferred stock	$	635,582		$	-

Net Loss Applicable to common stockholders	$	(3,354,065	)	$	(718,252	)


Per share data (basic and diluted)	$	(0.52	)	$	(0.07	)

Weighted average common shares outstanding		6,473,907			9,790,000

Visual Management Systems, Inc. and Subsidiaries
Statements of Cash Flows
For the Six Months Ended August 31, 2007 and 2006

	2007
	(restated)			2006

Cash flows from operating activities
Net loss	$	(2,718,483	)	$	(718,252	)
Adjustments to reconcile net loss to net cash used by operating activities
Depreciation and amortization		41,404			35,253
Stock-based compensation		477,078			418,151
Non-cash interest		177,232
(Increase) decrease in operating assets
Accounts receivable		(154,919	)		(48,759	)
Inventory		(162,858	)		25,147
Prepaid expenses and other assets		(114,574	)		(28,208	)
Other assets		(7,090	)		(22,000	)
Increase (decrease) in operating liabilities
Bank Overdraft		29,373
Accounts payable		499,635			65,359
Accrued expenses and other current liabilities		194,033			62,413
Sales tax payable		2,322			23,178
Customer Deposits		34,952
Net cash used by operating activities		(1,701,895	)		(187,718	)

Cash flows from investing activities
Purchases of property and equipment		(75,140	)		(3,577	)

Cash flows from financing activities
Repayment of capital leases		-			(7,365	)
Proceeds from convertible notes payable		112,500			250,000
Proceeds from the sale of common stock		373,105			-
Proceeds from loans
Proceeds from the issuance of preferred stock, net of issuance
costs of $250,148 in 2007		1,265,500			-
Principal repayments of long-term debt		(52,230	)		(65,939	)
Proceeds from loans payable - stockholders		17,956			72,616
Net cash provided by financing activities		1,716,831			249,312

Decrease in cash		(60,204	)		58,017

Cash
Beginning of period		60,204			36,241
End of period	$	-		$	94,258

2007	$	84,000
2008		124,000
2009		112,000
2010		98,000
2011		93,000
Thereafter		32,000

	$	543,000

		2007

Equipment leases – monthly payments ranging from $83 - $282,
Including interest between 15.33% - 19.03% and maturing through
June 2010.	$	60,908

Less: current portion		20,778

Obligations under capital leases – net of current portion	$	40,130

	2007		2006

Risk Free Rate of Return	4.74%		4.90%
Option lives	6.19	years	10
Annual Volatility	148%		150%

		2007			2006
			Weighted			Weighted
			Avg			Avg
		Shares	Exercise Price		Shares	Exercise Price

Outstanding at February 28		1,111,500	$ 2.50		705,000	$ 2.50

Granted		58,000	$ 2.81		240,000	$ 2.50
Forfeited		28,750	$ 2.50

Outstanding at August 31		1,140,750	$ 2.52		945,000	$ 2.50

Options Exercisable at August 31		810,500	$ 2.50		352,500	$ 2.50

The aggregate intrinsic value of outstanding and exercisable shares at 8/31/07 was $ 1,050,650

The weighted average fair value of options issued at grant using the fair value method during the six months ending August 31, 2007 was $ 3.12



		Weighted
	Shares Outstanding	Avg		Exercisable
Exercise prices	at 8/31/07	Life		at 12/31/07

$ 2.50	1,122,750	8.28		807,500
$ 3.50	18,000	4.92		3,000

	1,140,750	7.56		810,500


The company recognized compensation expense from the vesting of stock options of approximately $451,305 and $418,151
for the six months ended August 31, 2007 and 2006 respectively.

The Company's future compensation expense from these stock options
is estimated at $ 876,508 which will be amortized over the remaining estimated weighted useful life of 15 months.

Date: May 16, 2008	By:	/s/ Jason Gonzalez
		Jason Gonzalez
		President and Chief Executive Officer


2008	$	116,797
2009		73,342
2010		18,035
	$	208,174