STOCK OPTIONS AND WARRANTS

12 Months Ended

Aug. 31, 2012

STOCK OPTIONS AND WARRANTS [Text Block]

10. STOCK OPTIONS AND WARRANTS

On November 9, 2010, the Company granted 100,000 stock options to an advisor of the Company exercisable at $0.20 per share, which vested immediately and will expire on November 9, 2015.

On November 15, 2010, the Company dismissed a consultant, of which 50,000 vested options were cancelled on November 15, 2010 and another 50,000 vested stock options expired on February 15, 2011 unexercised.

On February 14, 2011 the Company granted 1,010,000 stock options to directors, officers, and consultants of the Company with the exercise price of $0.15, which vested immediately and expire on February 14, 2016.

On March 10, 2011, the Company granted 150,000 stock options to a director of the Company with an exercise price of $0.15, which vested immediately and expire on March 10, 2016.

On March 16, 2011, the Company granted 150,000 stock options to an advisor of the Company with an exercise price of $0.18, which vested immediately and expire on March 16, 2016.

On April 14, 2011, the shareholders approved and adopted at the Annual General Meeting to consolidate the Company’s 2007 Equity compensation plan and the Company’s 2010 Equity Compensation Plan into a new Company 2011 Stock Option Plan. The purpose of this Plan is to advance the interests of the Corporation, through the grant of Options, by providing an incentive mechanism to foster the interest of eligible persons in the success of the Corporation and its affiliates; encouraging eligible persons to remain with the Corporation or its affiliates; and attracting new Directors, Officers, Employees and Consultants.

On June 2, 2011, the Company granted 300,000 stock options to directors of the Company with an exercise price of $0.15, which vested immediately and expire on June 2, 2016.

On October 1, 2011, the Company granted 200,000 stock options to a consultant with an exercise price of $0.15, of which 50,000 stock options will be vested as of December 1, 2011 and 50,000 stock options will be vested in each subsequent quarter to be fully vested by September 1, 2012, and the options expire on October 1, 2016.

On November 15, 2011, the Company granted 40,000 stock options to a consultant with an exercise price of $0.10, which vested immediately and expire on November 15, 2016 (cancelled during the year ended August 31, 2012).

On March 19, 2012, the Company granted 450,000 stock options to a director and advisors to the Company with an exercise price of $0.15, of which 225,000 vested immediately and 225,000 vesting on August 15, 2012 and expire March 19, 2017.

On March 27, 2012, the Company granted 250,000 stock options to an Investor Relations company with an exercise price of $0.15, of which 125,000 vested immediately and 125,000 vesting on June 27, 2012 and expire on March 27, 2017.

On April 10, 2012, the Company granted 25,000 stock options to a consultant of the Company with an exercise price of $0.15, which vested immediately and expire on April 10, 2017.

For the year ended August 31, 2012, the Company recorded $32,581 (August 31, 2011 – $254,443) stock based compensation expenses which has been included in consulting fees.

A summary of the changes in stock options for the years ended August 31, 2012 and 2011 are presented below:

	Options Outstanding
	Weighted Average
	Number of Shares			Exercise Price
Balance, August 31, 2011	3,260,000		$	0.15
Granted	965,000		$	0.15
Cancelled	(40,000	)	$	0.10
Balance, August 31, 2012	4,185,000		$	0.15
	Options Outstanding
	Weighted Average
	Number of Shares			Exercise Price
Balance, August 31, 2010	1,790,000		$	0.14
Granted	1,110,000		$	0.15
Granted	150,000		$	0.15
Granted	150,000		$	0.18
Granted	300,000		$	0.15
Cancelled	(240,000	)	$	0.20
Balance, August 31, 2011	3,260,000		$	0.15

The fair value of options granted has been estimated as of the date of the grant by using the Black-Scholes option pricing model with the following assumptions:

	Period ended August 31, 2012
Expected volatility	134.43%-142.22%
Risk-free interest rate	1.32%-1.46%
Expected life	5.00 years
Dividend yield	0.00%
Weighted average fair value of the options	$0.06

	Year ended August 31, 2011
Expected volatility	142.56 – 160.89%
Risk-free interest rate	1.49-2.71%
Expected life	2.00-5.00 years
Dividend yield	0.00%
Weighted average fair value of the options	$0.18

The Company has the following options outstanding and exercisable.

August 31, 2012	Options outstanding			Options exercisable
Exercise prices	Number of shares	Remaining contractual life	Exercise Price	Number of shares exercisable	Exercise Price
$0.10	500,000	2.14 years	$0.10	500,000	$0.10
$0.10	650,000	2.33 years	$0.10	650,000	$0.10
$0.15	910,000	3.46 years	$0.15	910,000	$0.15
$0.15	150,000	3.53 years	$0.15	150,000	$0.15
$0.15	200,000	4.09 years	$0.15	100,000	$0.15
$0.15	450,000	4.55 years	$0.15	225,000	$0.15
$0.15	250,000	4.57 years	$0.15	125,000	$0.15
$0.15	25,000	4.61 years	$0.15	25,000	$0.15
$0.18	150,000	3.54 years	$0.18	150,000	$0.18
$0.20	350,000	0.29 years	$0.20	350,000	$0.20
$0.20	150,000	2.98 years	$0.20	150,000	$0.20
$0.20	100,000	3.19 years	$0.20	100,000	$0.20
$0.25	300,000	3.76 years	$0.15	300,000	$0.15
	4,185,000	3.10 years	$0.15	3,775,000	$0.15

August 31 2011	Options outstanding			Options exercisable
Exercise prices	Number of shares	Weighted average remaining contractual life	Weighted Average Exercise Price	Number of shares exercisable	Weighted Average Exercise Price
$0.10	500,000	3.14 years	$0.10	500,000	$0.10
$0.10	650,000	3.33 years	$0.10	650,000	$0.10
$0.15	910,000	4.46 years	$0.15	910,000	$0.15
$0.15	150,000	4.53 years	$0.15	150,000	$0.15
$0.18	150,000	4.54 years	$0.18	150,000	$0.18
$0.25	300,000	4.76 years	$0.15	150,000	$0.15
$0.20	350,000	1.29 years	$0.20	350,000	$0.20
$0.20	150,000	3.98 years	$0.20	150,000	$0.20
$0.20	100,000	4.19 years	$0.20	100,000	$0.20
	3,260,000	3.70 years	$0.15	3,110,000	$0.15

Warrants

8,729,000 Subscribers’ Warrants and 489,300 Broker’s Warrants issued in association with the private placement on March 3, 2011 meet the definition of a derivative. Since the exercise price of these warrants is denominated in Canadian dollars, which is different from the Company’s functional currency, the Subscribers’ Warrants and Broker’s Warrants are not considered indexed to the Company’s common shares and they cannot be classified within equity. Therefore the Subscribers’ Warrants and the Broker’s Warrants, which expires on March 31, 2013, are classified as warrants liability on the Company’s consolidated balance sheet.

The fair value of the Subscribers’ Warrants and the Broker’s Warrants was revalued on August 31, 2012 to $87,939 (August 31, 2011 - $300,792) using the Black-Scholes option pricing model with the following assumptions:

		Period ended August 31, 2012
Exercise price (CDN dollars per warrant)	$	0.20
Expected volatility		131.72%
Risk-free interest rate		1.15%
Expected life		.50 years
Dividend yield		0.00%
Estimated fair value per warrant (CDN dollars)	$	0.0095