Stockholders' Deficit

3 Months Ended

Apr. 30, 2012

Stockholders' Deficit

13.  Stockholders’ Deficit

Share Issuances 

The Company’s Board of Directors authorized the issuance 600,000 shares of common stock for compensation related to consulting and directors’ fees during the twelve months ended January 31, 2012. The shares were valued at $90,000 based on the fair values of the shares at the issuance dates. These shares were not issued as January 31, 2012 and were recorded as a liability at January 31, 2012. Included in the issuance of 600,000 shares were 400,000 restricted shares of common stock acquired by Mr. Suresh Nihalani for $0.001 per share in connection with Mr. Nihalani’s re-election to the Company’s Board of Directors. The fair value of the grant to Mr. Nihalani was $60,000 and was recorded as compensation expense during the year ended January 31, 2012.

On various dates during the three months ended April 30, 2012, the Company’s Board of Directors authorized the issuance of 916,000 shares to Mr. Gary Augusta as follows: (i) 400,000 restricted shares of the Company’s common stock were acquired at $0.001 per share by Mr. Augusta in connection with Mr. Augusta’s election to the Company’s Board. The fair value of the shares at grant date was $47,520 and will be accounted for as prepaid director fees and amortized to expense over the related service period. The total of $44,880 unamortized fee was recorded as prepaid consulting contra equity account on the balance sheet as of April 30, 2012. (ii) 216,000 shares were issued to Mr. Augusta with a fair value of $25,661 related to the cost of placing the Senior Secured Note (see Note 8); and (iii) 300,000 common shares with a fair value of $41,560 related to consulting services provided by Mr. Augusta during the three months ended April 30, 2012. The Company has the right, but not the obligation, to redeem the unearned service portion of the 400,000 restricted shares purchased by Mr. Nihalani and 400,000 restricted shares purchased by Mr. Augusta at par value.

Warrants

Warrants consisted of the following:

	Aggregate intrinsic value		Number of warrants
Outstanding at January 31, 2012	$	-		1,500,000
Granted		-		-
Exercised		-		-
Cancelled		-		-
Outstanding at April 30, 2012	$	-		1,500,000

Exercise Price		Warrants outstanding		Weighted average remaining contractual life		Warrants exercisable		Weighted average exercise price
$	0.114850		1,250,000		2.50		1,250,000	$	0.114850
$	0.114850		250,000		2.50		250,000	$	0.114850

In conjunction with the completion of the private placement on October 16, 2009 (see Note 9), the Company issued a total of 1,500,000 warrants. Of this amount, 1,250,000 warrants were issued to the holders of the Convertible Notes and 250,000 warrants were granted to the placement agent. The warrants are exercisable into shares of Common Stock at an exercise price of $0.11485. The warrants have a five-year term and expire on October 31, 2014.

2010 Equity Incentive Plan

On March 4, 2010, the Company’s Board of Directors approved the 2010 Equity Incentive Plan (the “Plan”). The Plan provides for the granting of the following types of awards to persons who are employees, officers, consultants, advisors, or directors of our Company or any of its affiliates:

Under the Plan, the Company may issue a variety of equity vehicles to provide flexibility in implementing equity awards, including incentive stock options, nonqualified stock options, restricted stock grants and stock appreciation rights.

Subject to the adjustment provisions of the Plan that are applicable in the event of a stock dividend, stock split, reverse stock split or similar transaction, up to 5,000,000 shares of common stock may be issued under the Plan. Options granted under the Plan generally vest over a three-year period and generally expire ten years from the date of grant. As of January 31, 2012, options available for future grant under the Plan amounted to 2,850,000. The Company issues new shares to satisfy stock option and warrant exercises. 

Stock options and warrants issued to non-employees as compensation for services to be provided to the Company are accounted for based upon the fair value of the services provided or the estimated fair value of the option or warrant, whichever can be more clearly determined. The Company recognizes this expense over the period in which the services are provided. The Company did not issue stock options or warrants for services during the three months ended April 30, 2012.

During the year ended January 31, 2011, the Company’s Board of Directors granted 1,150,000 options to employees and directors. The fair value of the options was $0.11 per share, or $126,500 aggregate fair value. The fair value of each option award was estimated using the Black-Scholes option pricing model. The calculation was based on the exercise price of $0.15, an expected term of 10.0 years using the simplified method, interest rate of 1.98%, volatility of 80% and no dividends. Related compensation expense was $6,524 and $7,333 and for the three months ended April 30, 2012 and 2011, respectively. Unrecorded compensation cost related to non-vested the 2011option awards was $18,761 at April 30, 2012 and $25,015 at January 31, 2012, respectively.

On February 1, 2012 the Board of Directors approved the grant of 1,000,000 stock options to Mr. Ted Schreck in pursuant to Mr. Schreck’s agreement to join the Company’s Board as director. The options vest in three equal installments on each of February 1, 2012, 2013, and 2014. The options expire on the tenth anniversary of issuance. The fair value of the stock options of $120,000 was determined under the Black-Scholes option pricing model. The calculation was based on the exercise price of $0.15, an expected term of 10.0 years using the simplified method, interest rate of 1.97%, volatility of 80.0% and no dividends. Total stock option compensation recognized for Mr. Schreck’s stock options was $55,000 for the three months ended April 30, 2012. Unrecorded compensation cost related to non-vested option awards to Mr. Schreck was $65,000 as of April 30, 2012, which will be recognized through fiscal year ending January 31, 2014, subject to Mr. Schreck’s continued role as director.

Stock option transactions under the Company’s stock option plans the three months ended April 30, 2012 are summarized below:

	Shares		Weighted Average Per Share Exercise Price		Weighted Average Remaining Life (Years)		Aggregate Intrinsic Value
Balance, January 31, 2012		1,150,000	$	0.15		8.9	$	-
Granted		1,000,000		0.15		9.8		-
Exercised		-		-		-		-
Expired		-		-		-		-
Forfeited		-		-		-		-
Balance, April 30, 2012		2,150,000	$	0.15		9.2	$	-
Vested and expected to vest		1,483,333	$	0.15		1.4	$	-
Exercisable, April 30, 2012		1,283,333	$	0.15		-	$	-

As of April 30, 2012 and January 31, 2012, there was approximately $63,641  and $25,015, respectively, of total unrecognized compensation cost related to non-vested share-based employee and director compensation arrangements. The remaining unrecognized expense at April 30, 2012 is expected to be recognized through the fiscal year ending January 31, 2015.