Note 6 - Non-derivative Warrants

6 Months Ended

Jan. 31, 2014

Notes

Note 6 - Non-derivative Warrants

Note 6 – Non-Derivative Warrants

In the six months ended January 31, 2014 (Q1/Q2 ’14) and the year ended July 31, 2013, the Company issued 2,069,000 and 14,440,500 non-derivative warrants in connection with previous issuances of 2,069,000 and 14,440,500 shares of common stock, respectively. These warrants vest immediately upon grant date and have a two year exercise period. The warrants have fixed escalating exercise prices based on time elapsed from the date of grant, ranging from $0.30 to $0.50 per share for subscriptions before March 14, 2007, and from $0.40 to $0.60 per share for subscriptions after that date. The Company recorded $184,408 and $1,069,816 of expense, respectively, associated with these warrants at the time of issuance.

The warrants were issued with an adjustment provision whereby the exercise price would be adjusted in the event of any of the following: the Company's shares of common stock outstanding are subdivided into greater or consolidated into fewer shares, or in the case of any capital reorganization.

The following is a reconciliation of the number and weighted-average exercise prices for the warrants with non-derivative features:

	Warrants
	Number of Shares	Weighted Average Exercise Price ($)
Outstanding, July 31, 2012	-	-
Granted February 15, 2013	2,828,000	0.40
Exercised April 30, 2013	(250,000)	0.40
Granted June 15, 2013	11,862,500	0.38
Granted August 15, 2013	2,069,000	0.40
Expired	-	-
Outstanding, January 31, 2014 (end of Q2 ’14)	16,509,500	0.38

The following summarizes information about warrants with non-derivative features outstanding as of January 31, 2014 (end of Q2 ’14):

Exercise Price	Number of Warrants	Remaining Life
$0.40	2,578,000	1.04 Years
$0.30	2,562,500	1.37 Years
$0.40	9,300,000	1.37 Years
$0.40	2,069,000	1.54 Years

The Company estimated the fair value of the warrants issued during the periods using the Black-Scholes option pricing model with the following assumptions:

	Six months ended January 31, 2014 (Q1/Q2 ’14)	Year Ended July 31, 2013
Expected life (in years)	2.00	2.00
Expected dividend yield (%)	0.00	0.00
Expected volatility (%)	81.3	79.7
Risk free interest rate (%)	0.36	0.33