NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of presentation

The accompanying interim consolidated financial statements for the nine months ended February 29, 2012 and February 28, 2011 are unaudited and have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. The results of operations realized during an interim period are not necessarily indicative of results to be expected for a full year. These financial statements should be read in conjunction with the information filed as part of the Company's Annual Report on Form 10-K, which was filed on August 29, 2011.

Use of estimates

The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements as well as the reported amount of revenues and expenses during the reporting period. Actual results could differ from these estimates.

Discontinued Operations

In accordance with ASC 205-20, Presentation of Financial Statements-Discontinued Operations ("ASC 205-20"), we reported the results of our Turkey operations as a discontinued operation. The application of ASC 205-20 is discussed in Note 4 "Discontinued Operations".

Fair value of financial instruments

The carrying value of cash and cash equivalents, receivables, accounts payable and accrued expenses, and debt approximate their fair values because of the short-term nature of these instruments. Management believes the Company is not exposed to significant interest or credit risks arising from these financial instruments.

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value maximize the use of observable inputs and minimize the use of unobservable inputs. The Company utilizes a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable.

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Level 1 -

Quoted prices in active markets for identical assets or liabilities. These are typically obtained from real-time quotes for transactions in active exchange markets involving identical assets.

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Level 2 -

Quoted prices for similar assets and liabilities in active markets; quoted prices included for identical or similar assets and liabilities that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets. These are typically obtained from readily-available pricing sources for comparable instruments.

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Level 3 -

Unobservable inputs, where there is little or no market activity for the asset or liability. These inputs reflect the reporting entity's own beliefs about the assumptions that market participants would use in pricing the asset or liability, based on the best information available in the circumstances.

The following table presents the derivative financial instruments, the Company's only financial liabilities measured and recorded at fair value on the Company's consolidated balance sheets on a recurring basis, and their level within the fair value hierarchy as of February 29, 2012:

	Amount		Level 1		Level 2		Level 3
Embedded conversion derivative liability	$	47,160	$	-	$	-	$	47,160
Warrant derivative liabilities		369,368		-		-		369,368
Total	$	416,528	$	-	$	-	$	416,528

The following table provides a summary of the changes in fair value, including net transfers in and/or out, of the derivative financial instruments, measured at fair value on a recurring basis using significant unobservable inputs:


Balance at May 31, 2011	$	-
Fair value of embedded conversion derivative liability at issuance		65,616
Fair value of warrant derivative liabilities at issuance		371,559
Change in fair value of warrant derivative liabilities included in loss on debt extinguishment		66,250
Unrealized derivative gains included in other income (expense)		(86,897)
Balance at February 29, 2012	$	416,528

The fair value of the derivative liabilities are calculated at the time of issuance and the Company records a derivative liability for the calculated value. Changes in the fair value of the derivative liabilities are recorded in other income (expense) in the consolidated statements of operations.

As at February 29, 2012, the derivatives were valued using the Black-Scholes option pricing model with the following assumptions: stock price on the measurement date of $0.17, term of 0.31 years - 2.48 years, expected volatility of 164%-184%, and discount rates of 0.09% and 0.24%. The Company has considered the provisions of ASC 480, Distinguishing Liabilities from Equity, as the conversion feature embedded in each debenture could result in the note principal being converted to a variable number of the Company's common shares.

Reclassification

Certain accounts in the prior period were reclassified to conform to the current period financial statements presentation.