10-Q/A

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

_________________

FORM 10-Q/A

(Amendment No. 1)

_________________

(Mark One)

[X]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended August 31, 2011

OR

[  ]    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 001-15503

________________

               WORKSTREAM INC.               

(Exact name of registrant as specified in its charter)

Canada	N/A
(State or other jurisdiction of	(IRS Employer Identification No.)
incorporation or organization)
2200 Lucien Way, Suite 201
Maitland, Florida	32751
(Address of principal executive offices)	(Zip code)

(407) 475-5500

(Registrant's telephone number,

including area code)

____________________

Indicate by check mark whether the registrant:  (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes [X] No [ ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes [ ] No [ ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer, or a smaller reporting company.   See definitions of “accelerated filer,” “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (check one):

Large accelerated filer [  ]	Accelerated filer [  ]
Non-accelerated filer [  ] (Do not check if a smaller reporting company)	Smaller reporting company [X]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes [  ]  No [X] 

As of October 12, 2011 there were 2,743,699 common shares, no par value, outstanding, excluding 270 common shares held in escrow.

EXPLANATORY NOTE

This Amendment No. 1 on Form 10-Q/A (this “Amendment”) amends the registrant’s Quarterly Report on Form 10-Q for the quarterly period ended August 31, 2011, which was originally filed with the Securities and Exchange Commission on October 14, 2011 (the “Original Filing”).  The registrant hereby furnishes Exhibit 101 to the Form 10-Q in accordance with Rule 405 of Regulation S-T.

No other changes have been made to the Form 10-Q.  This Amendment No. 1 speaks as of the original filing date of the Form 10-Q, does not reflect events that may have occurred subsequent to the original filing date and does not modify or update in any way disclosures made in the original Form 10-Q.

Pursuant to Rule 406T of Regulation S-T, the interactive data files on Exhibit 101 hereto are deemed not filed for purposes of Section 18 of the Securities Act of 1934, as amended, and otherwise are not subject to liability under that section.

PART II

ITEM 6.  EXHIBITS.

Exhibit	Description
31.1*	Certification of Chief Executive Officer Pursuant to Exchange Act Rule 13a-14(a) or 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes Oxley Act of 2002.
31.2*	Certification of Chief Financial Officer Pursuant to Exchange Act Rule 13a-14(a) or 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes Oxley Act of 2002.
32.1*	Certifications of the Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002.
101.INS*	XBRL Instance Document
101.SCH*	XBRL Taxonomy Extension Schema
101.CAL*	XBRL Taxonomy Extension Calculation Linkbase
101.DEF*	XBRL Taxonomy Extension Definition Linkbase
101.LAB*	XBRL Taxonomy Extension Label Linkbase
101.PRE*	XBRL Taxonomy Extension Presentation Linkbase

* Filed herewith.

SIGNATURES

Pursuant to the requirements of  Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

		WORKSTREAM INC.
Dated:  November 3, 2011	By:	/s/ John Long
		John Long Chief Executive Officer (Principal Executive Officer)
Dated:  November 3, 2011	By:	/s/ John Long
		John Long Acting Chief Financial Officer (Principal Financial Officer)

EX-31.1

EXHIBIT 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT

TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, John Long, certify that:

1.       I have reviewed this Amendment No. 1 to the Quarterly Report on Form 10-Q/A of Workstream Inc.;

2.       Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.       The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have:

(a)      Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)      Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)      Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)      Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

4.       The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):

(a)      All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b)      Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

DATE:   November 3, 2011	By:	/s/ John Long
	John Long Chief Executive Officer (Principal Executive Officer)

EX-31.2

EXHIBIT 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT

TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, John Long, certify that:

1.       I have reviewed this Amendment No. 1 to the Quarterly Report on Form 10-Q/A of Workstream Inc.;

2.       Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.       The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have:

(a)      Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)      Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)      Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)      Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

4.       The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):

(a)      All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b)      Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

DATE:   November 3, 2011	By:	/s/ John Long
	John Long Acting Chief Financial Officer (Principal Financial Officer)

EX-32.1

EXHIBIT 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the accompanying Amendment No. 1 to the Quarterly Report on Form 10-Q/A of Workstream Inc. (the “Company”) for the period ended August 31, 2011, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, John Long, Chief Executive Officer and Acting Chief Financial Officer, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to his knowledge:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

DATE:   November 3, 2011	By:	/s/ John Long
	John Long Chief Executive Officer (Principal Executive Officer)

DATE:   November 3, 2011	By:	/s/ John Long
	John Long Acting Chief Financial Officer (Principal Financial Officer)

XML

CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $)	Aug. 31, 2011	May 31, 2011
Statement of Financial Position [Abstract]
Accounts Receivable, allowances	$ 581,736	$ 571,078
Class A Series B - Preferred share, par value	$ 0	$ 0
Class A Series B - Preferred share, issued	481,174	481,174
Class A Series B - Preferred share, outstanding	481,174	481,174
Class A Series A - Preferred share, par value	$ 0	$ 0
Common stock, par value	$ 0	$ 0
Common stock, issued	2,693,598	2,517,373
Common stock, outstanding	2,693,598	2,517,373

XML

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (USD $)	3 Months Ended
	Aug. 31, 2011	Aug. 31, 2010
Income Statement [Abstract]
Revenues, net	$ 2,138,096	$ 1,770,905
Cost of revenues (exclusive of amortization and depreciation expense noted below)	195,573	154,615
Gross profit	1,942,523	1,616,290
Operating expenses:
Selling and marketing	780,383	330,261
General and administrative	510,278	752,093
Research and development	395,862	391,078
Amortization and depreciation	79,145	63,393
Total operating expenses	1,765,668	1,536,825
Business Income	176,855	79,465
Corporate and stock compensation expense
RSU/Option Expense	177,792	500,679
Public company expense	79,637	9,152
Corporate overhead	597,553	841,301
Total corporate and stock compensation expenses	854,982	1,351,132
Operating Loss	(678,127)	(1,271,667)
Other income / (expense):
Interest income and expense, net	5,318	(655,540)
Gain on extinguishment of debt		1,192,635
Change in fair value of warrants and derivative		214,500
Impairment of goodwill		685,426
Other income and expense, net	285	(393)
Other income (expense), net	5,603	1,436,628
Income (loss) before income tax expense	(672,524)	164,961
Income tax expense	(3,676)	(8,336)
Net Income (loss) from Continuing Operations	(676,200)	156,625
Net Income from Discontinued Operations	7,366	333,585
Net Income (loss)	(668,834)	490,210
Earnings (loss) per share from continuing operations - basic	$ (0.26)	$ 0.38
Earnings (loss) per share from continuing operations - diluted	$ (0.26)	$ 0.36
Earnings per share from discontinued operations - basic	$ 0	$ 0.81
Earnings per share from discontinued operations - diluted	$ 0	$ 0.59
Earnings (loss) per share - basic	$ (0.26)	$ 1.18
Earnings (loss) per share - diluted	$ (0.26)	$ 0.87
Weighted average number of common shares outstanding - Basic	2,603,172	416,409
Weighted average number of common shares outstanding - Diluted	2,684,845	566,593
Net income (loss)	(668,834)	490,210
Comprehensive loss:
Foreign currency translation adjustment	(9,975)	(7,395)
COMPREHENSIVE INCOME (LOSS)	$ (678,809)	$ 482,815

XML

Document and Entity Information (USD $)	3 Months Ended
	Aug. 31, 2011	Oct. 12, 2011
Document And Entity Information
Entity Registrant Name	WORKSTREAM INC
Entity Central Index Key	0001095266
Document Type	10-Q
Document Period End Date	Aug. 31, 2011
Amendment Flag	false
Current Fiscal Year End Date	--05-31
Is Entity a Well-known Seasoned Issuer?	No
Is Entity a Voluntary Filer?	No
Is Entity's Reporting Status Current?	Yes
Entity Filer Category	Smaller Reporting Company
Entity Public Float		$ 16,332,225
Entity Common Stock, Shares Outstanding		2,743,699
Document Fiscal Period Focus	Q1
Document Fiscal Year Focus	2011

XML

OTHER LONG-TERM OBLIGATIONS

3 Months Ended

Aug. 31, 2011

Notes to Financial Statements

NOTE 6. OTHER LONG-TERM OBLIGATIONS

The Company entered into various capital lease obligations for equipment to be housed in an outside data center facility.  All capital leases are being paid on a monthly and quarterly basis.

On May 10, 2011, Workstream Inc. (the “Company”) entered into a Business Financing Agreement (the “Financing Agreement”) with Bridge Bank, National Association.  The Financing Agreement is secured by a lien on all of the assets of the Company and its subsidiaries pursuant to the terms of a Stock Pledge Agreement among the Company, its subsidiaries and the Lending Investor (the “Pledge Agreement”).  The credit limit on the Financing Agreement is $3,000,000.  Interest on the Financing Agreement accrues at an annual rate of the Prime Rate plus 2% with the Prime Rate having a minimum of 3.25%.  From and after the occurrence and during the continuance of any event of default under the Financing Agreement, the interest rate then in effect will be automatically increased by 5% per year.  The Financing Agreement has an annual facility fee of $15,000 or .5% of the advance balance.  The Financing Agreement has a monthly maintenance fee of .125% of the average monthly balance.  The Financing Agreement contains customary covenants of providing monthly financial statements within 30 days, annual audited financials with 180 days, annual board approved budget within 60 days of fiscal year end and a semi-annual accounts receivable audit.  The Company must also maintain a minimum asset coverage ratio of 1.5 to 1.  The Pledge Agreement sets forth that the Company has granted a security interest in all shares of capital stock, corporations, limited partnership interests and limited liability company interests that the Company now owns or hereafter acquires.

Long-term obligations consist of the following at August 31, 2011 and May 31, 2011:

	August 31, 2011		May 31, 2011
Secured notes payable	$	901,663	$	901,663
Long-term payables		111,684		83,333
Capital lease obligations		148,850		205,111
Leasehold inducements		-		4,321
		1,162,197		1,194,428
Less current portion of:
Senior secured notes payable		-		-
Long-term obligations		96,465		135,110
	$	1,065,732	$	1,059,318
Maturities
Fiscal 2012	$	96,465
Fiscal 2013		1,058,927
Fiscal 2014		6,805
	$	1,162,197

XML

DISCONTINUED OPERATIONS

3 Months Ended

Aug. 31, 2011

Notes to Financial Statements

NOTE 11. DISCONTINUED OPERATIONS

During the fourth quarter of fiscal 2011, the Company decided to discontinue its operations of the Rewards business.  This business was not core to our vision of a Human Resources software and technology enabled service business. We had been given notice that the largest rewards customer, as well as others, will not renew its contract with Workstream.   Although management was disappointed by the customers’ decision to terminate their agreements, the Rewards service is low margin and working capital intensive.  The business is not held for sale.

Results from discontinued operations were as follows:

	Three Months Ended
	August 31, 2011		August 31, 2010
Rewards		26,647		1,966,188
Revenue, net		26,647		1,966,188
Cost of revenues:
Cost of revenues		18,434		1,500,792
Gross profit		8,213		465,396
Expenses		847		131,811
Impairment charges - goodwill		-		-
Amortization and depreciation		-		-
Net Income from Discontinued Operations	$	7,366	$	333,585

Assets and liabilities from discontinued operations consist of $98,433 of accounts payable at August 31, 2010.

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SENIOR SECURED NOTES PAYABLE

3 Months Ended

Aug. 31, 2011

Notes to Financial Statements

NOTE 2. SENIOR SECURED NOTES PAYABLE

On December 11, 2009, the Company entered into an Exchange Agreement (collectively, the “2009 Exchange Agreements”) with each of the Holders of its 2008 Notes pursuant to which, among other  things, each Holder exchanged its existing 2008 Note for: (i) a replacement senior secured non-convertible note (a “Non-Convertible Note”); (ii) a senior secured convertible note that is convertible into the Company's common shares at a conversion price of $100.00 (a “$100.00 Convertible Note”); and, (iii) a senior secured convertible note that is convertible into the Company's common shares at a conversion price of $40.00 (a “$40.00 Convertible Note,” and together with the Non-Convertible Notes and the $100.00 Convertible Notes, collectively, the “2009 Secured Notes”).  Pursuant to the terms of the separate 2009 Exchange Agreements, the Company issued Non-Convertible Notes in an aggregate principal amount of $9,500,000, $100.00 Convertible Notes in an aggregate principal amount of $6,650,000, and $40.00 Convertible Notes in an aggregate principal amount of $5,361,337.  The aggregate principal amount of all of the 2009 Secured Notes issued pursuant to the 2009 Exchange Agreements was $21,613,516, which was the aggregate amount of principal and accrued interest outstanding under the 2008 Notes on December 11, 2009.  This transaction is deemed an extinguishment of debt and new issuance for accounting purposes in accordance with ASC 470-50-40.

Each 2009 Secured Note continued to be secured by a lien on all of the assets of the Company and its subsidiaries pursuant to the terms of the then existing Security Agreement with the Holders.   Interest on the 2009 Secured Note accrued at an annual rate of 9.5% increasing to 14.5% upon occurrence of default.  Interest on the $100.00 Convertible Notes and the $40.00 Convertible Notes compound on a quarterly basis and was to be payable, together with principal, on July 31, 2012 (the “Original Maturity Date”).  Interest on the Non-Convertible Notes compounded on a quarterly basis and was to be payable on the Original Maturity Date, while part of the principal was to be payable on a quarterly basis pursuant to an agreed upon schedule.

Upon the occurrence of an event of default, as defined in the 2009 Secured Notes, a Holder could require the Company to redeem all or a portion of such Holder’s 2009 Notes.  Upon a disposition of assets or liquidity event (each as defined in the 2009 Secured Notes), the Company was required to use 100% of the net proceeds to redeem the 2009 Secured Notes.  Each 2009 Secured Note also contained certain financial and other customary covenants with which the Company was required to comply.  Each subsidiary of the Company previously agreed to guarantee the obligations of the Company under the 2008 Notes and reaffirmed such guarantee with respect to the 2009 Secured Notes by delivering to the Holders a Reaffirmation of Guaranty.  The Company and each of the Holders also entered into a Second Amended and Restated Registration Rights Agreement principally in order to include the common shares of the Company into which the $100.00 Convertible Notes and the $40.00 Convertible Notes were convertible as registrable securities.

The Company’s 2009 Secured Notes and embedded put derivatives were valued in accordance with ASC 820 using multiple, probability-weighted cash flow outcomes at credit-risk adjusted market rates (“Forward Value”).  The Senior Secured Notes with options to convert principal balances into common equity derive their value from a combination of the Forward Value and the fair value of the embedded conversion feature (“ECF”).  For purposes of the ECF, management concluded that the Monte Carlo Simulations Method (“MCS”) was the appropriate technique to embody all assumptions market participants would likely consider in estimating the ECF value.  The fair value of the 2009 Secured Notes and embedded put derivatives was estimated to be $33,587,376 on the date of the exchange, which resulted in a loss on extinguishment of debt of $12,076,040 included in the statement of operations for the period ending May 31, 2010.  Further, in accordance with ASC 470-20-25 and ASC 470-50-40, the net premium of $12,076,040 associated with the 2009 Secured Notes was reclassified to additional paid-in capital under the presumption that such net premium represented a capital contribution in which the 2009 Secured Notes were being carried at face value.

Each of the warrants issued in connection with the 2008 Exchange Transaction that occurred in fiscal 2009 contained anti-dilution protection provisions.  As a result of the Company’s issuance of the $40.00 Convertible Notes, the exercise price of the warrants that remain outstanding was adjusted to $40.00 per share from $100.00 per share and the number of common shares issuable upon exercise was proportionately increased by 10,500 to 17,500 in which $995,400 representing the fair value of this increase was included in the loss on extinguishment of debt in the statement of operations as it was directly related to the exchange of the New Secured Notes.

Furthermore, in accordance with the guidance in ASC 470-20-30, the Payment-in-Kind (“PIK”) interest associated with the $40.00 Convertible Note and $100.00 Convertible Note accrued during each quarter has to be compared to the fair value of the Company’s commons shares at the quarter end, or the commitment date, for potential interest charges derived from beneficial conversion features.  During the year ended May 31, 2010, the Company recognized additional interest expense of $137,804 associated with the PIK interest’s beneficial conversion feature.

In January 2010, $148,856 of principal and accrued interest related to the $40.00 Convertible Notes was converted into 3,721 of the Company’s common shares and in February 2010, $88,932 of principal and accrued interest related to the $100.00 Convertible Notes was converted into 889 of the Company’s common shares.  In March 2010, $302,203 of principal and accrued interest related to the $40.00 Convertible Notes was converted into 7,555 shares of the Company’s common stock.  In April 2010, $274,790 of principal and accrued interest related to the $40.00 Convertible Notes was converted into 6,869 of the Company’s common shares.

On May 31, 2010, the Company defaulted on the 2009 Secured Notes when the quarterly principal payment was not made and the Company fell out of compliance with certain covenants.  Upon default, the interest rate on the 2009 Secured Notes increased by 5%.

On August 13, 2010, the Company entered into separate 2010 Exchange and Share Purchase Agreements and a 2010 Exchange Agreement (collectively, the “Exchange Agreements”) with each of the Holders of its 2009 Secured Notes (collectively, the “Investors”) pursuant to which, among other things, the Investors exchanged their existing senior secured non-convertible notes and senior secured convertible notes (collectively, the “Notes”) (the aggregate principal amount of all the Notes, together with accrued but unpaid interest and penalties, was $22,356,665) for a total of 1,707,130 of the Company’s common shares (the “Exchange Shares”).  The issuance of the Exchange Shares was deemed to be exempt from registration pursuant to Section 3(a)(9) of the Securities Act of 1933.  The Warrants were not affected by the transactions effected by the 2010 Exchange Agreements.

Simultaneous and in connection with the consummation of the transactions contemplated by the 2010 Exchange Agreements, the Company received an additional $750,000 from one Holder (the “Lending Investor”) in exchange for a senior secured note (the “2010 Note”).  The 2010 Note is secured by a lien on all of the assets of the Company and its subsidiaries pursuant to the terms of a Security Agreement among the Company, its subsidiaries and the Lending Investor (the “Security Agreement”).

Interest on the 2010 Note accrues at an annual rate of 12%.  From and after the occurrence and during the continuance of any event of default under the 2010 Note, the interest rate then in effect will be automatically increased to 15% per year.  Principal and interest is payable upon the maturity date of October 13, 2012.  Upon the occurrence of an event of default, as defined in the 2010 Note, the Lending Investor may require the Company to redeem all or a portion of the 2010 Note.  Upon a Disposition (as defined in the 2010 Note), the Company has agreed to use the Net Proceeds from such Disposition to redeem the 2010 Note.  Under the 2010 Note, the Company is required to comply with various financial and other covenants and restrictions.  Material covenants and restrictions include that: the Company and its subsidiaries may not redeem or repurchase any of its capital shares or declare or pay any dividend without the consent of the Lending Investor; subject to certain exceptions, the Company and its subsidiaries may not sell, lease, license, assign, transfer, convey or otherwise dispose of any assets in excess of $250,000 in any twelve-month period without the consent of the Lending Investor; the Company must maintain a minimum cash balance of not less than $250,000; as of the end of each calendar month, the Company’s cash balance plus accounts receivable that are less than 90 days old must be equal to or greater than 200% of the outstanding principal amount, interest due and late charges owing under the 2010 Note; and the Company and its subsidiaries may not have any material weakness in their control environments as reported by the Company’s auditors.  Each subsidiary of the Company delivered a Guaranty pursuant to which it agreed to guarantee the obligations of the Company under the 2010 Note.   On August 13, 2010, the 2010 Note had a fair value of $835,743.  The Company’s 2010 Note was valued using the fair value of the forward cash flows including principal and interest payable at the maturity date using the credit-risk adjusted market rates.  This value is being accreted to the face value of the 2010 Note, including accrued interest through the maturity date using the effective interest method.

The 2010 Note contains a contingent put reflected in the contractual rights of default.  Upon the occurrence of an event of default, as defined in the 2010 Note, the holder could require us to redeem all or a portion of such holder’s 2010 Note at a price equal to 100% of the sum of the principal amount of the 2010 Note, accrued and unpaid interest and late fees, if any,

to be redeemed. Upon the occurrence of a disposition or liquidity event, as defined in the 2010 Note, the Holder could require us to redeem all of a portion of such Holder’s 2010 Note at an amount equal to the net proceeds up to the maximum amount owed under the note including outstanding principal, unpaid interest and late fees.  Under ASC 815, Derivatives and Hedging, embedded put derivatives such as these require bifurcation and separate classification at fair value.  The value of the embedded put derivatives  were deemed to be nil on May 31, 2011.

Simultaneous and in connection with the 2010 Exchange Agreements and the 2010 Note, we issued 158,069 shares in a private placement of $1,250,000 by the new management team and the 2009 Note holders.

The 2010 exchange transaction met the requirements of and was accounted for under ASC 470-60, Debt: Troubled Debt Restructuring By Debtor.  The Company has performed an evaluation and determined that certain prescribed indicators provided by ASC 470 guidance were met to provide evidence that the Company was having financial difficulty.  In addition, the Company determined that creditor granted a concession to the Company since the fair value of the stock and 2010 Note issued to the investors was less than the carrying value of the 2009 Secured Notes and the cash received from the private placement and the 2010 Note.  The fair value of the stock issued in the exchange and the private placement was determined to be $12.00 per share considering guidance of ASC 820, Fair Value Measurements and Disclosures.  The excess of the carrying value of the 2009 Secured Notes, less issuance costs, plus cash received in the exchange over the fair value of the common stock and debt issued in the exchange was recorded as a gain on extinguishment of debt totaling $1,192,635.  The basic gain per common share was $0.66 and the diluted gain per common share was $0.62.

On August 12, 2011, the Company entered into a Securities Purchase Agreement with CCM Master Qualified Fund, Ltd., the holder of the 2010 Note pursuant to which the Company consummated on August 12, 2011 a private placement of 147,841 shares of its Series B Preferred shares to the Investor valued at $443,522, which was equivalent to the carrying value of the principal and accrued and unpaid interest on the 2010 Note.  The issuance of the Series B Shares in the private placement was deemed to be exempt from registration pursuant to Section 4(2) of the Securities Act of 1933.

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CAPITAL STOCK

3 Months Ended

Aug. 31, 2011

Notes to Financial Statements

NOTE 8. CAPITAL STOCK

Classes of Stock

The authorized share capital consists of an unlimited number of no par value common shares, an unlimited number of no par value Class A Preferred Shares (the “Class A Preferred Shares”), and an unlimited number of no par value Class A, Series B Convertible Preferred Shares (the “Series B Shares”).  There were 2,693,868 common shares issued and outstanding, including 270 shares being held in escrow, as of August 31, 2011.  There were 481,174 Class A, Series B Convertible Preferred Shares outstanding as of August 31, 2011.

The Series B Shares rank senior to the Company’s common shares and the Company’s previously created but unissued Class A, Series A Preferred Shares.  The Series B Shares accrue dividends at a rate of 7% per year, payable in additional Series B Shares.  The Series B Shares have a liquidation preference and are convertible into common shares at a price of $3.00 per share, subject to adjustments and full-ratchet anti-dilution protection.  Additionally, the Series B shares will automatically convert into common shares on the 180th day that the closing price of the common shares equals or is greater than three times the conversion price for such entire 180 day period.  In addition, in the event of liquidation, dissolution or winding up of the Company, the holders of Series B shares can require the redemption of such Series B shares.  As there are certain events that are considered “deemed liquidation” events, such as a merger or consolidation or similar transaction resulting in a change of control that are outside of the control of the company, the Series B Preferred has been classified in the mezzanine equity section of the Company’s balance sheet.

On July 14, 2011, the Company entered into a Securities Purchase Agreement with First Advantage Offshore Services, Private Limited pursuant to which the Company consummated on July 15, 2011 a private placement of 333,333 shares of its newly formed Class A, Series B Convertible Preferred Shares to the Investor for $1,000,000 net of issuance costs of $60,534.  The issuance of the Series B Shares in the private placement was deemed to be exempt from registration pursuant to Section 4(2) of the Securities Act of 1933.  Marc Bala, a Director of First Advantage Corporation and a Principal of Symphony Technology Group joined the Company’s Board of Directors upon consummation of the transaction. The Company will use the proceeds from the private placement for working capital and general corporate purposes.

Stock Plans and Stock-Based Compensation

The Company grants stock options to employees, directors and consultants under the 2002 Amended and Restated Stock Option Plan (the “Plan”), which was most recently amended in April 2011 at the annual shareholders’ meeting. Under the Plan, as amended, the Company is authorized to issue up to 375,000 shares of common stock upon the exercise of stock options or restricted stock unit grants.  The Audit Committee of the Board of Directors administers the Plan.  Under the terms of the Plan, the exercise price of any stock options granted shall not be lower than the market price of the common stock on the date of the grant.   Options to purchase shares of common stock generally vest ratably over a period of three years and expire five years from the date of grant.

On June 1, 2006, the Company adopted the provisions of ASC 718, which requires it to recognize expense related to the fair value of stock-based compensation awards.  Stock-based compensation expense for all stock-based compensation awards granted on or subsequent to June 1, 2006 is based on the grant date fair value estimated in accordance with the provisions of ASC 718.  Compensation expense for stock option awards is recognized on a straight-line basis over the requisite service period of the award.  The assumptions used to calculate the fair-value of share-based payment awards are found in Note 1 under Accounting for Stock-Based Compensation.  The Company recognized the following for stock-based compensation expense resulting from stock options in the consolidated statements of operations and comprehensive loss under other operating expenses:

	Three Months Ended
	August 31, 2011		August 31, 2010
Stock compensation expense - options	$	64,001	$	17,450

Stock option activity and related information is summarized as follows:

								Weighted
				Weighted				Average
				Average		Weighted		Remaining		Aggregate
	Number			Exercise		Average		Contractual		Intrinsic
	of Options			Price		Fair Value		Term (in Years)		Value
Balance outstanding - May 31, 2010		4,386		$	236.00
Granted		81,346			8.38	$	11.71
Exercised		-			-
Forfeited or expired		(22,621	)		31.35
Balance outstanding - May 31, 2011		63,111			16.07
Granted		-			-	$	-
Exercised		-			-
Forfeited or expired		(453	)		401.01
Balance outstanding - August 31, 2011		62,658		$	13.29				3.9	$	-
Exercisable - August 31, 2011		21,597		$	20.31				3.9	$	-

The aggregate intrinsic value in the table above represents total intrinsic value (of options in the money), which is the difference between the Company’s closing stock price of $2.00 on August 31, 2011, the last trading day of the reporting period and the exercise price times the number of shares, that would have been received by the option holders had the option holders exercised their options on August 31, 2011.

There were no options exercised during the three months ended August 31, 2011 and 2010; and therefore, no intrinsic value or cash received from option exercises during the period.

The following table summarizes information about options outstanding August 31, 2011:

Range of Exercise Prices	Number of Options Outstanding		Weighted Average Remaining Contractual Life (in Years)		Weighted Average Exercise Price		Number of Options Exercisable		Weighted Average Remaining Contractual Life (in Years)		Weighted Average Exercise Price
$7.90 - $99.00		61,021		4.0	$	8.57		20,355		4.0	$	8.62
$100.00 - $299.00		1,114		2.8	$	118.74		719		2.8	$	49.09
$300.00 - $399.00		457		1.4	$	313.98		457		1.4	$	313.98
$400.00 - $599.00		66		0.5	$	516.85		66		0.5	$	516.85
		62,658		3.9	$	13.29		21,597		3.9	$	20.31

As of August 31, 2011, $465,236 of total unrecognized compensation costs related to non-vested stock options is expected to be recognized ratably over the remaining individual vesting periods up to three years.  The realized tax benefit from

stock options and other share based payments was nil for the three months ended August 31, 2011 and 2010 due to the uncertainty of realizability.

The Company grants restricted stock units (“RSUs”) to certain management and members of the Board of Directors.  Each restricted stock unit represents one share of common stock and vests ratably over three years.  The Company will then issue common stock for the vested restricted stock units upon exercise by the grantee.  During the vesting period, the restricted stock units cannot be transferred, and the grantee has no voting rights.  The cost of the awards, determined as the fair value of the shares on the grant date, is expensed ratably over the vesting period.  On October 28, 2010, the Board of Directors revised the management team’s employment agreements.  This revision substitutes Restricted Stock in lieu of the Restricted Stock Units in their employment agreements until such time that the Stock Option Plan has authorized shares sufficient enough in quantity to allow for the issuance of the Restricted Stock Units as originally granted. The stock-based compensation expense associated with the restricted stock units included in RSU/option expense on the consolidated statements of operations and in additional paid-in capital on the consolidated balance sheets is as follows:

	Three Months Ended
	August 31, 2011		August 31, 2010
Stock compensation expense - RSUs	$	113,791	$	224,505
Stock compensation expense - Restricted Stock Issuances	$	-	$	-
Total	$	113,791	$	224,505

As of August 31, 2011, $888,507 of total unrecognized compensation costs related to non-vested restricted stock unit grants is expected to be recognized ratably over the remaining individual vesting periods up to three years.

				Weighted
	Number			Average
	of Units			Fair Value
Outstanding - May 31, 2010		717
Granted		155,298		$	11.83
Vested and issued		(25,437	)
Vested and unissued		(19,010	)
Forfeited or expired		(21,024	)
Outstanding - May 31, 2011		90,544
Granted		-
Vested and issued		(7,023	)
Vested and unissued		(2,120	)
Cancelled		-
Forfeited or expired		-
Outstanding - August 31, 2011		81,401

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SEGMENT INFORMATION

3 Months Ended

Aug. 31, 2011

Notes to Financial Statements

NOTE 9. SEGMENT INFORMATION

The Company has two reportable segments: Human Resource Software and Services and Career Transition Services.  The revenue for the Human Resource Software and Services consists of revenue generated from Human Resource software, related professional services, tax incentives, applicant sourcing and recruitment research services.

The Company changed its reportable segments during fiscal year 2011.  The Company was reporting the segments as Enterprise which included software and professional services and Career Networks which included recruitment research services and career transition services.  The Company consolidated management, and began cross-selling the various product lines.  Management believes the new segment reporting more accurately represents the present conditions within the Company.

The following tables summarize the Company’s operations by business segment for the three months ended August 31, 2011 and 2010:

	Three Months Ended								Three Months Ended
	August 31, 2011								August 31, 2010
	Human Resource Software and Services		Career Transition Services			Total			Human Resource Software and Services			Career Transition Services			Total
Software	$	947,520	$	-		$	947,520		$	1,160,470		$	-		$	1,160,470
Professional services		67,546		-			67,546			38,595			-			38,595
Tax incentives		536,430		-			536,430			-			-			-
Job board		340,152		-			340,152			343,532			-			343,532
Career transition services		-		246,448			246,448			-			228,308			228,308
Revenue, net		1,891,648		246,448			2,138,096			1,542,597			228,308			1,770,905
Cost of revenues:
Other		186,653		8,920			195,573			149,599			5,016			154,615
Gross profit		1,704,995		237,528			1,942,523			1,392,998			223,292			1,616,290
Expenses		1,445,389		241,134			1,686,523			1,057,307			416,125			1,473,432
Impairment charges - goodwill		-		-			-			(685,426	)		-			(685,426	)
Amortization and depreciation		77,108		2,037			79,145			56,805			6,588			63,393
Business segment income from continuing operations	$	182,498	$	(5,643	)		176,855		$	964,312		$	(199,421	)		764,891
Corporate and stock compensation expense							854,982									1,351,132
Other expense and income tax							1,927									742,866
Net Income (loss) from Continuing Operations						$	(676,200	)							$	156,625
Net Income from Discontinued Operations						$	7,366								$	333,585
Net Income (loss)						$	(668,834	)							$	490,210

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COMMITMENTS AND CONTINGENCIES

3 Months Ended

Aug. 31, 2011

Notes to Financial Statements

NOTE 7. COMMITMENTS AND CONTINGENCIES

We are involved in various lawsuits, claims, investigations and proceedings that arise in the ordinary course of business.  If the potential loss from an item is considered probable and the amount can be estimated, we accrue a liability for the estimated loss, as provided in ASC 450, Contingencies.  Because of uncertainties related to these matters, accruals are based only on the best information available at the time.  Periodically, we review the status of each significant matter and assess our potential financial exposure.  These matters are inherently unpredictable and are subject to significant uncertainties, some of which are beyond our control.  Should any of the estimates and assumptions utilized to estimate potential losses change or prove to have been incorrect, it could have a material impact on our results of operations, financial position or cash flows.

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CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Unaudited) (USD $)	Common Stock	Additional Paid-In Capital	Accumulated Other Comprehensive Loss	Accumulated Deficit	Total Shareholders' Equity	Comprehensive Loss
Beginning Balance, Amount at May. 31, 2011	$ 140,209,385	$ 31,061,264	$ (1,006,010)	$ (164,160,363)	$ 6,104,276
Beginning Balance, Shares at May. 31, 2011	2,517,373
Restricted stock unit grants and expense, Share	7,023
Restricted stock unit grants and expense, Amount		113,791			113,791
Issuance of preferred shares for settlement of debt
Stock option expense					64,002
Issuance of common shares for services, Share	18,707
Issuance of common shares for services, Amount	34,054				34,054
Issuance of common shares for compensation, Share	144,565
Issuance of common shares for compensation, Amount	379,787				379,787
Net loss				(668,834)	(668,834)	(668,834)
Cumulative translation adjustment			(9,975)		(9,975)	(9,975)
Comprehensive loss						(678,809)
Ending Balance, Amount at Aug. 31, 2011	140,623,226	31,239,057	(1,015,985)	(164,829,197)	6,017,101
Ending Balance, Shares at Aug. 31, 2011	$ 2,687,668

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LONG-TERM DEBT - RELATED PARTY

3 Months Ended

Aug. 31, 2011

Notes to Financial Statements

NOTE 3. LONG - TERM DEBT - RELATED PARTY

On January 18, 2011, the Company acquired Incentives Advisors.  Part of the consideration given was two notes payable to the managing members of Incentives Advisors.  Each note is for $117,500 and accrues interest at the rate of five percent per annum.  Each note is payable in thirty equal monthly installments of principal plus interest starting on March 1, 2011.  The notes may be voluntarily prepaid, in whole or in part prior to the maturity date with premium or penalty.  The only event of default is failure to pay when due any principal or interest due within 10 business days thereafter.  If a default does occur, the note holders have the right to declare the entire unpaid principal balance of the note, together with all accrued and unpaid interest thereon, immediately due and payable.

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ACQUIRED INTANGIBLE ASSETS AND GOODWILL

3 Months Ended

Aug. 31, 2011

Notes to Financial Statements

NOTE 4. ACQUIRED INTANGIBLE ASSETS AND GOODWILL

Acquired intangible assets consist of the following:

	August 31, 2011					May 31, 2011
				Accumulated					Accumulated
	Cost			Amortization		Cost			Amortization
Customer relationships	$	663,000		$	81,984	$	663,000		$	48,834
Software developed for internal use		388,905			29,014		348,172			-
Intellectual property		1,322,760			1,322,760		1,322,760			1,322,760
		2,374,665		$	1,433,758		2,333,932		$	1,371,594
Less accumulated amortization		(1,433,758	)				(1,371,594	)
Net acquired intangible assets	$	940,907				$	962,338

Amortization expense for intangible assets was $62,164 and $48,834 for the quarter ended August 31, 2011 and zero for quarter ended August 31, 2010, respectively.

Expected future amortization expense for the customer relationships as of August 31, 2011 follows:

	Amount
Year ended May 31:
2012		99,450
2013		132,600
2014		132,600
2015		132,600
2016		83,766
Total	$	581,016

The following represents the detail of the changes in the goodwill account for the years ended May 31, 2011 and 2010:

	Enterprise
	Workforce
	Services
Goodwill at May 31, 2010	$	6,045,900
Purchase of Incentives Advisors	$	1,875,115
Impairment adjustment		685,426
Goodwill at May 31, 2011	$	8,606,441
Activity		-
Goodwill at August 31, 2011	$	8,606,441

During the fourth quarter of fiscal 2010, the Company determined that indicators of impairment existed for the goodwill associated with its Enterprise Workforce operating segment.  Based on this determination, the Company performed an impairment test.  In considering the current and expected future market conditions, the Company determined that the Enterprise Workforce goodwill was impaired in accordance with ASC 350, Intangibles – Goodwill and Other, and the Company recorded non-cash, pre-tax goodwill impairment charges of $5,335,760 during the fiscal year ended May 31, 2010. The Enterprise operating segment goodwill impairment was an estimate that had not yet been finalized.  During the 1st quarter of fiscal year 2011, we had a change in management and well as a conversion of our 2009 Notes to Equity (see Note 2 for further discussion).  The Company felt that these transactions could have impacted the impairment test.  This delayed the impairment test and the Company was unable to fully complete Step 2 of its goodwill impairment testing prior to the issuance of the financials for fiscal year 2010.  Upon finalization of Step 2, a significant adjustment to the impairment estimate was made in the 1st quarter of fiscal year 2011 totaling $685,426 resulting in a partial reversal of the estimated impairment made in the fourth quarter of fiscal 2010.  The Company’s impairment test is based on a discounted cash flow method.  The discounted cash flows analysis is an income method to valuation wherein the total fair value of the business entity is calculated by discounting projected future cash flows back to the date of valuation.

Effective as of January 18, 2011, Workstream Inc. acquired Incentives Advisors.  This acquisition was accounted for under the acquisition method per ASC Topic 805, Business Combinations We recognized goodwill of $1,875,115 for the excess of the purchase price over the fair value of the acquired assets and liabilities assumed.

Inherent in our fair value determinations are certain judgments and estimates, including projections of future cash flows, the discount rate reflecting the risk inherent in future cash flows, the interpretation of current economic indicators and market valuations and our strategic plans with regard to our operations.  A change in these underlying assumptions would cause a change in the results of the tests, which could cause the fair value of one or more reporting units to be more or less than their respective carrying amounts.  In addition, to the extent that there are significant changes in market conditions or overall economic conditions or our strategic plans change, it is possible that our conclusion regarding goodwill impairment could change, which could have a material adverse effect on our financial position and results of operations.  Impairment charges related to reporting units which are not currently impaired may occur in the future if further market deterioration occurs resulting in a revised analysis of fair value.

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ACCRUED LIABILITIES

3 Months Ended

Aug. 31, 2011

Notes to Financial Statements

NOTE 5. ACCRUED LIABILITIES

Accrued liabilities consist of the following at August 31, 2011 and May 31, 2011:

	August 31, 2011		May 31, 2011
Legal, audit & professional fees		53,966	$	90,772
Merger costs		80,000		80,000
Consulting fees		92,333		107,958
Sales tax payable		329,961		329,746
Other		729,513		738,061
	$	1,285,773	$	1,346,537

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (USD $)	3 Months Ended
	Aug. 31, 2011	Aug. 31, 2010
Cash flows used in operating activities:
Net income / (loss)	$ (668,834)	$ 490,210
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Amortization and depreciation	79,145	63,393
Amortization of deferred financing costs		12,195
Leasehold inducement amortization	46	2,889
Allowance for doubtful accounts, net	13,003	60,745
Impairment of goodwill		685,426
Stock-based compensation	177,793	241,954
Non-cash compensation of stock purchased by management		258,725
Non-cash compensation of stock for services	34,054
Non-cash compensation of stock for compensation	379,787
Gain on exchange of senior secured notes payable		(1,192,635)
Change in fair value of warrants and derivative		214,500
Accounts receivable	(283,284)	(672,910)
Prepaid expenses and other assets	(59,990)	82,120
Accounts payable	(263,673)	(21,570)
Accrued liabilities	(24,610)	486,957
Accrued compensation	(200,038)	5,842
Deferred revenue	(34,240)	278,638
Net cash used in operating activities	(850,841)	(803,373)
Cash flows used in investing activities:
Purchase of equipment	(31,430)
Capitalization of Software Development Costs	(40,734)
Net cash used in investing activities	(72,164)
Cash flows provided by / (used in) financing activities:
Proceeds from issuance of common stock		1,250,000
Proceeds from issuance of senior secured note payable, net of issuance costs $90,000		660,000
Proceeds from issuance of preferred stock, net of issuance costs of $60,534	939,466
Repayment of long-term obligations	(113,689)	(52,673)
Net cash provided by financing activities	825,777	1,857,327
Effect of exchange rate changes on cash and cash equivalents	(9,975)	(7,870)
Net increase / (decrease) in cash and cash equivalents	(107,203)	1,046,084
Cash and cash equivalents - beginning of period	813,333	358,529
Cash and cash equivalents - end of period	706,130	1,404,613
Supplemental schedule of non-cash investing and financing activities:
Exchange of senior secured notes for common stock		22,382,383
Reclass of accrued liabilities to long-term obligations	112,313
Exchange of debt instruments for preferred shares	443,522
Cash paid for interest	16,908	6,939
Cash paid for taxes	$ 5,623

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THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

3 Months Ended

Aug. 31, 2011

Notes to Financial Statements

NOTE 1. THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Unaudited Interim Financial Information

The accompanying condensed consolidated balance sheet as of August 31, 2011, the condensed consolidated statements of operations and comprehensive loss for the three months ended August 31, 2011 and 2010, and the condensed consolidated statements of cash flows for the three months ended August 31, 2011 and 2010 are unaudited but include all adjustments that are, in the opinion of management, necessary for a fair presentation of our financial position at such dates and our results of operations and cash flows for the periods then ended in conformity with U.S. generally accepted accounting principles (“US GAAP”).  The condensed consolidated balance sheet as of May 31, 2011 has been derived from the audited consolidated financial statements at that date but, in accordance with the rules and regulations of the United States Securities and Exchange Commission (“SEC”), does not include all of the information and notes required by US GAAP for complete financial statements.  Operating results for the three months ended August 31, 2011 are not necessarily indicative of results that may be expected for the entire fiscal year.  These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Form 10-K for the fiscal year ended May 31, 2011.

Description of the Company

Workstream Inc. is a provider of Human Resource Software and Services.  Our business primarily provides corporate human resource departments with solutions used for Talent Acquisition and Talent Management.

Our Talent Acquisition solutions includes the Workstream Recruiting Solution; Incentive Advisors, which assists businesses in obtaining hiring tax credits, training grants and other federal, state and local incentives; 6FigureJobs.com is a job board which matches executive level candidates with executive recruiters.

Workstream’s Talent Management solution (TalentCenter) allows businesses to use web based software to better manage human resources.  Available solutions include systems to manage performance, development, employee communications and compensation.  Increasingly, employers seek automated tools to tie their performance management and professional development strategies to compensation management so that they truly can pay for performance.

Workstream conducts its business primarily in the United States of America and Canada and our target market is employers with more than 1,500 employees.

Management’s Assessment of Liquidity

The Company has incurred substantial losses in recent periods.  Losses for the three months ended August 31, 2011 was $668,834 and losses for the years ended May 31, 2011 and 2010 were $162,719 and $26,583,731, respectively.  However, since the first quarter of fiscal 2011, the Company has been successful in raising capital through private placements of its common and preferred stock.  On August 13, 2010, we exchanged our 2009 Senior Secured Notes for common stock.  At the same time we completed a private placement of our common shares for $1,250,000.  Furthermore in the third quarter of fiscal 2011, we raised $1,006,000 in additional private placements of our common stock.  On July 14, 2011, the Company entered into a Securities Purchase Agreement with First Advantage Offshore Services, Private Limited pursuant to which the Company consummated on July 15, 2011 a private placement of 333,333 shares of its newly formed Class A, Series B Convertible Preferred Shares (the “Series B Shares”) to the Investor for $1,000,000.  The Company will use the proceeds from the private placement for working capital and general corporate purposes.

On August 12, 2011, the Company entered into a Securities Purchase Agreement with CCM Master Qualified Fund, Ltd. pursuant to which the Company consummated on August 12, 2011 a private placement of 147,841 shares of its Series B Shares to the Investor for $443,522, the principal and accrued and unpaid interest on the 2010 Note.   As a result, we have shareholders’ equity of $6,017,101 as of August 31, 2011.

The Company has made significant reductions in operating expenses beginning in the fourth quarter of fiscal 2008 and continuing through fiscal 2012.  These, together with the funding received by the Company in connection with private placements of its common and preferred  shares, as well as $750,000 received by the Company in connection with the issuance of its 2010 Note and  $900,000 received by the Company under its line of credit with Bridge Bank and an analysis of our current contracts, forecasted new business, our current backlog and current expense level leads management believes that current operations will be sufficient to meet its anticipated working capital and capital expenditure requirements.  If this proves insufficient, management will consider additional cost savings measures or additional financing, if deemed necessary.

We recognize that there are no assurances that the Company will be successful in meeting its cash flow requirements, however, management is confident that, if necessary, there are other alternatives available to fund operations and meet cash requirements during fiscal 2012.

The Company continues to actively pursue financing from multiple sources including but not limited to, additional sales of preferred or common stock for cash, bank financing, and business acquisitions.    Potential uses of such capital include but are not limited to continued investments in its core technology, enhancing its sales infrastructure and acquiring companies that provide complimentary products and services to the company’s core suite of products.

Use of Estimates

The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions affecting the amounts reported in the consolidated financial statements and the accompanying notes.  Changes in these estimates and assumptions may have a material impact on the financial statements and accompanying notes.

Revenue Recognition

The Company derives revenue from various sources including the following: subscription and hosting fees; licensing of software and related maintenance fees; professional services related to software implementation, customization and training; career transition services; training grants; hiring and job creation credits; and, applicant sourcing.

In general, the Company recognizes revenue when all of the revenue recognition criteria are met, which is typically when:

· evidence of an arrangement exists;

· services have been provided or goods have been delivered;

· the price is fixed or determinable; and

· collection is reasonably assured.

The Company primarily provides various HCM software applications as an on-demand application service and also enters into the sale of license agreements. Revenue is generated through a variety of contractual arrangements.

Subscription and hosting fees and software maintenance fees are billed in advance on a monthly, quarterly or annual basis.  Amounts that have been invoiced are recorded in deferred revenue or revenue, depending on whether the revenue recognition criteria have been met.  Quarterly and annual payments are deferred and recognized monthly over the service period on a straight-line basis.   Set up fees are deferred and recognized monthly on a straight-line basis over the contractual lives of the customer.

Subscription revenues and hosting fees consist of fees from customers accessing our on-demand application service.  The Company follows the provisions of ASC 605, Revenue Recognition and ASC605-25, Revenue Recognition with Multiple Deliverables Arrangements.  For revenue arrangements with multiple deliverables, the Company allocates the total customer arrangement to the separate units of accounting based on their relative fair values, as determined by the price of the undelivered items when sold separately.  Professional services included in an application services arrangement with multiple deliverables are accounted for separately when these services have value to the customer on a standalone basis, and there is objective and reliable evidence of fair value of each undeliverable item of the arrangement. When accounted for separately, revenues are recognized as the services are rendered.

The new revenue guidance contained in ASU 2009-13 modifies the way the Company accounts for certain of its arrangements, by allowing the Company to separate its professional services and corresponding license fees into two separate units of accounting. These two deliverables represent the primary elements in those arrangements and are recognized upon performance or delivery of each service or product, respectively to the end customer. Revenue related to

professional services is recognized as obligations are fulfilled on a proportional performance basis while the license fees may be recognized over a one to five year period. Expenses associated with the delivery of our consulting service are expensed as incurred. These arrangements usually do not contain cancellation or refund-type provisions and may include termination for convenience clauses following a stated period of time or the failure to meet performance level commitments. Multiple element arrangements consisting of multiple products are impacted by the new revenue guidance. Under ASU 2009-13, total consideration for an arrangement is allocated to each product using the hierarchy of VSOE, third party evidence or the relative selling price method and is recognized as each product is delivered to the customer. Consistent with current practice, revenue may be deferred if the arrangement includes any unusual terms including extended payment terms, specified acceptance terms, or holdbacks payable upon final acceptance of the product.

The Company’s arrangements with customers may include provisions of professional services and software licenses. For arrangements that contain multiple deliverables, the selling price hierarchy established in ASU 2009-13 is used to determine the selling price of each deliverable. The selling price hierarchy allows for the use of an estimated selling price (“ESP”) to determine the allocation of arrangement consideration to each deliverable in a multiple-element arrangement in the absence of vendor specific objective evidence (“VSOE”) or third-party evidence (“TPE”). To qualify as a separate unit of accounting, deliverable items must have value to the customer on a standalone basis and, if the arrangement includes a general right of return relative to the delivered item(s), delivery or performance of the undelivered item(s) is considered probable and substantially in our control. If the arrangement does not meet all criteria above, the entire amount of the transactions is deferred until all elements are delivered. The Company determines the selling price in multiple-element arrangements using VSOE or TPE if available. VSOE is determined based on the price charged for the same deliverable when sold separately and TPE is established based on the price charged by our competitors or third parties for the same deliverable. If the Company is unable to determine the selling price because VSOE or TPE does not exist, the ESP is used.

License revenues consist of fees earned from the granting of both perpetual and term licenses to use the software products.  The Company recognizes revenue from the sale of software licenses in accordance with ASC985-605, Software Revenue Recognition. when all of the following conditions are met: a signed contract exists; the software has been shipped or electronically delivered; the license fee is fixed or determinable; and the Company believes that the collection of the fees is reasonably assured.  License revenue is recorded upon delivery with an appropriate deferral for maintenance services, if applicable, provided all of the other relevant conditions have been met. The total fee from the arrangement is allocated based on Vendor Specific Objective Evidence ("VSOE") of fair value of each of the undelivered elements. Maintenance agreements are typically priced based on a percentage of the product license fee and are either multi-year or have a one-year term, renewable annually. VSOE of fair value for maintenance is established based on the stated renewal rates. Services provided to customers under maintenance agreements include technical product support and unspecified product upgrades. VSOE of fair value for the professional service element is based on the standard hourly rates the Company charges for services when such services are sold separately.

Professional services revenue is generated from implementation of software applications and from customer training, customization and general consulting.  In addition, revenue is generated from technical support not included in the software maintenance.  The majority of professional services revenue is billed based on an hourly rate and recognized on a monthly basis as services are provided.  For certain contracts which involve significant implementation or other services which are essential to the functionality of the software and which are reasonably estimable, the license and implementation services revenue is recognized using contract accounting, as prescribed by ASC605-35, Revenue Recognition of Construction-Type and Certain Production-Type Contracts.  Revenue is recognized over the period of each implementation using the percentage-of-completion method.  Labor hours incurred is used as the measure of progress towards completion, and management believes its estimates to completion are reasonably dependable. A provision for estimated losses on engagements is made in the period in which the losses become probable and can be reasonably estimated.

Tax advisory service revenues are generated from transaction fees based on a percentage of the value of the tax credit identified and are recognized in the period that the approval of the underlying eligible employee or program is received from the taxing authority and such credit is reported to the client. Revenue from hourly and fixed fee consulting services is recognized as the services are performed.

For career transition services, the Company recognizes revenue when all of the revenue recognition criteria are met, which is typically when services have been completed.

As described above, the Company defers certain revenues received and recognizes them ratably over the applicable term of service.  If the revenue is expected to be recognized within the next twelve months, it is classified as a current liability on

the accompanying consolidated balance sheets.  If the revenue is expected to be recognized over a period longer than 12 months, then the portion of revenue expected to be recognized greater than 12 months is classified as a long-term liability.

Warrant Liability

The Company follows the guidance primarily codified in ASC 815, Derivatives and Hedging on determining whether an instrument (or embedded feature) is indexed to an entity’s own stock.  For instruments that meet the requirements for liability classification, the changes in fair value are included in the Consolidated Statements of Operations.

Warrants issued in conjunction with the 2008 Senior Secured Notes Payable are classified as liabilities.  The fair value of the warrants was valued using a probability-weighted trinomial lattice-based valuation model with the following key inputs:

Lattice Model Inputs:
	August 31, 2011		May 31, 2011
Stock price	$	2.00	$	3.70
Exercise price	$	40.00	$	40.00
Expected volatility		54% - 154%		54% - 154%
Expected dividend yield		0%		0%
Expected term (in years)		1		1.2
Risk-free interest rate		0.04% - 0.18%		0.04% - 0.18%

Fair Value of Financial Instruments

The Company performs fair value measurements in accordance with the guidance provided by ASC 820, Fair Value Measurements and Disclosures.  ASC 820 defines fair value, establishes a framework for measuring fair value under GAAP and expands disclosures about fair value measurements.  ASC 820 defines fair value as the exchange price that would be paid by an external party for an asset or liability (exit price) and emphasizes that fair value is a market-based measurement, not an entity-specific measurement.   ASC 820 also establishes a fair value hierarchy which requires an entity to classify the inputs used in measuring fair value for assets and liabilities as follows:

Level 1 – Inputs are unadjusted quoted market prices in active markets for identical assets or liabilities available at the measurement date;

Level 2 – Inputs are unadjusted quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, inputs other than quoted prices that are observable and inputs that are corroborated by observable market data; and

Level 3 – Inputs are unobservable inputs that are supported by little or no market activity, therefore requiring an entity to develop its own assumptions about the assumptions that market participants would use in pricing the asset or liability based on the best available information.

Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to management as of August 31, 2011. The Company uses the market approach to measure fair value for its Level 1 financial assets which includes cash equivalents.  The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities.  There were no cash equivalents as of August 31, 2011 or May 31, 2011.  The respective carrying value of certain on-balance-sheet financial instruments approximated their fair values due to the short-term nature of these instruments.  These instruments include cash, accounts receivable, accounts payable and accrued liabilities.

The Company’s 2009 Senior Secured Notes were initially valued using multiple, probability-weighted cash flow outcomes at credit-risk adjusted market rates (“Forward Value”).  The 2009 Senior Secured Notes with options to convert principal balances into common equity derive their value from a combination of the Forward Value and the fair value of the embedded conversion feature (“ECF”).  For purposes of the ECF, management concluded that the Monte Carlo Simulations Method (“MCS”) was the appropriate technique to embody all assumptions market participants would likely consider in estimating the ECF value.

The Company’s 2010 Senior Secured Note was valued using the fair value of the forward cash flows including principal and interest payable through the maturity date, using credit-risk adjusted market rates.

The fair value of the Company’s notes associated with the acquisition of Incentives Advisors approximates the carrying value based upon current rates available to the Company.

The Company’s warrants related to the 2008 Notes were valued using a lattice-based valuation model with the inputs detailed previously under Warrant Liability.

The following table details the change in the fair value of our financial instruments using significant unobservable inputs (Level 3) during the three months ended August 31, 2011:

	Warrant
	Liability
Fair value as of May 31, 2011	$	2,847
Change in fair value of warrants and derivative		-
Fair value as of August 31, 2011	$	2,847

Impairment of goodwill was measured on a nonrecurring basis using the income approach, which utilizes Level 3 inputs in the fair value hierarchy.

Derivative Financial Instruments

The Company accounts for derivative instruments in accordance with FASB ASC 815, Derivatives and Hedging (“ASC 815”), which requires additional disclosures about the Company’s objectives and strategies for using derivative instruments, how the derivative instruments and related hedged items are accounted for , and how the derivative instruments and related hedging items affect the financial statements.  The Company does not use derivative instruments to hedge exposure to cash flow, market and foreign currency risk.  Terms of convertible debt and equity instruments are reviewed to determine whether or not they contain embedded derivative instruments that are required under ASC 815 to be accounted for separately from the host contract, and recorded on the balance sheet at fair value.  The fair value of derivatives liabilities, if any, is required to be revalued at each reporting date, with corresponding changes in fair value recorded current period operating results.

Preferred Stock

The preferred stock has been classified within the mezzanine section between liabilities and equity in its consolidated balance sheets in accordance with ASC 480, Distinguishing Liabilities from Equity because any holder of Series B Preferred may require the Company to redeem all of its Series B Preferred in the event of a triggering event which is outside of the control of the Company.

Accounting for Stock-Based Compensation

Stock-based compensation expense for all stock-based compensation awards granted on or subsequent to June 1, 2006 is based on the grant date fair value estimated in accordance with ASC 718, Compensation – Stock Compensation.  Compensation expense for stock option awards is recognized on a straight-line basis over the requisite service period of the award.  We utilize the Black-Scholes option-pricing model to value our stock option grants.  As required, we also estimate forfeitures in calculating the expense related to stock-based compensation, and it requires us to reflect cash flows resulting from excess tax benefits related to those options as a cash inflow from financing activities rather than as a reduction of taxes paid.

The assumptions in the following table were used to calculate the fair-value of share-based payment awards using the Black-Scholes option pricing model, which values options based on the stock price at the grant date, the expected life of the option, the estimated volatility of the stock, expected dividend payments, and the risk-free interest rate over the expected life of the option.  There were no stock options granted during the three months ended August 31, 2011.

	Three Months Ended
	August 31, 2010
Expected volatility	178% - 198%
Expected dividend yield	0%
Expected term (in years)	3.5
Risk-free interest rate	1.47% - 2.0%
Forfeiture rate	30%

The dividend yield was calculated by dividing the current annualized dividend by the option exercise price of each grant.  The expected volatility was determined considering the Company’s historical stock prices for the fiscal year the grant occurred and prior fiscal years for a period equal to the expected life of the option.  The risk-free rate represents the US Treasury bond rate with maturity equal to the expected life of the option.  The expected life of the option was estimated based on the exercise history of previous grants.

Intangible Asset- Customer Relationships

Customer relationships represent relationships that we have with customers of acquired companies which are based upon contractual rights.  These customer relationships are initially recorded at their fair value based on the present value of expected future cash flows using the multi-period excess earnings method.

In accordance with FASB ASC 350, “Intangibles-Goodwill and Other”, acquired customer relationships is amortized over the estimated life of the revenue generated by the customers.  Management has determined the useful life to be five years.  The Company amortizes the value of its customer list on a straight-line basis over its estimated useful life.  Management evaluates the useful lives of this asset on an annual basis and tests for impairments whenever events or changes in circumstances occur that could impact the recoverability of this asset.

Software Developed for Internal Use

In accordance with FASB ASC 350, “Intangibles-Goodwill and Other, Internal-Use Software”, the costs incurred in the preliminary stages of development are expensed as incurred.  Once an application has reached the development stage, internal costs are capitalized until the software is substantially complete and ready for its intended use.  Internal use software is amortized on a straight-line basis over its estimated useful life, generally five years.  Management evaluates the useful lives of these assets on an annual basis and tests for impairments whenever events or changes in circumstances occur that could impact the recoverability of these assets.

The company capitalized internal-use software costs for the three months ending August 31, 2011 of $40,734.  The company began amortizing those costs in the first quarter of fiscal 2012.  certain of our internally developed software was placed into service in June 2011.

Accrued Compensation

Included in accrued compensation is $150,000 payable due to a related party.

Prepaids and Other Assets

	August 31, 2011		May 31, 2011
Advances	$	19,124	$	19,124
Advances, related parties		30,000		30,000
Prepaid Insurance		9,691		10,760
Software and Maintenance		26,507		22,555
Other		71,888		41,931
	$	157,210	$	124,370

Research and Development Costs

The Company accounts for research and development costs associated with computer software development under the provisions of ASC 985, Software.  Costs are expensed as incurred until technological feasibility has been established. Technological feasibility is established upon completion of a working model; thereafter, all software production costs are capitalized and subsequently reported at the lower of unamortized cost or net realizable value. To date, the time period between the establishment of technological feasibility and completion of software development has been short, and as a result, no significant development costs have been incurred during that period. Accordingly, the Company has not capitalized any research and development costs associated with computer software products to be sold, leased, or otherwise marketed.

Research and development costs primarily include salaries and related costs, costs associated with using outside contractors and miscellaneous software support and administrative expenses.

Recent Accounting Pronouncements

In December 2010, the FASB issued ASU No. 2010-28, which updates the guidance in ASC Topic 350, Intangibles – Goodwill &Other. The amendments in ASU 2010-28 affect all entities that have recognized goodwill and have one or more reporting units whose carrying amount for purposes of performing Step 1 of the goodwill impairment test is zero or negative. The amendments in ASU 2010-28 modify Step 1 so that for those reporting units, an entity is required to perform Step 2 of the goodwill impairment test if it is more likely than not that a goodwill impairment exists. In determining whether it is more likely than not that a goodwill impairment exists, an entity should consider whether there are any adverse qualitative factors indicating that an impairment may exist. The qualitative factors are consistent with existing guidance, which requires that goodwill of a reporting unit be tested for impairment between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. The adoption of this guidance is not expected to have a material impact on our financial position or results of operations.

In December 2010, the FASB issued ASU No. 2010-29, which updates the guidance in ASC Topic 805, Business Combinations. The objective of ASU 2010-29 is to address diversity in practice about the interpretation of the pro forma revenue and earnings disclosure requirements for business combinations. The amendments in ASU 2010-29 specify that if a public entity presents comparative financial statements, the entity should disclose revenue and earnings of the combined entity as though the business combination(s) that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period only. The amendments also expand the supplemental pro forma disclosures to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings. The amendments affect any public entity as defined by ASC 805 that enters into business combinations that are material on an individual or aggregate basis. This guidance will become effective for us for acquisitions occurring on or after the beginning of our 2012 fiscal year. We do not expect the adoption of this guidance will have a material impact upon our financial position or results of operations.

In April 2010, the FASB issued Accounting Standards Update No. 2010-17, Revenue Recognition—Milestone Method (Topic 605)  –  Revenue Recognition  (ASU 2010-17). ASU 2010-17 provides guidance on defining the milestone and determining when the use of the milestone method of revenue recognition for research or development transactions is appropriate. It provides criteria for evaluating if the milestone is substantive and clarifies that a vendor can recognize consideration that is contingent upon achievement of a milestone as revenue in the period in which the milestone is achieved, if the milestone meets all the criteria to be considered substantive. ASU 2010-17 became effective for us in fiscal 2012 and should be applied prospectively.

In January 2010, the FASB issued Accounting Standards Update No. 2010-06, Improving Disclosures about Fair Value Measurements (Topic 820) — Fair Value Measurements and Disclosures (ASU 2010-06), to add additional disclosures about the different classes of assets and liabilities measured at fair value, the valuation techniques and inputs used, the activity in Level 3 fair value measurements, and the transfers between Levels 1, 2, and 3. Certain provisions of this update became effective for us in fiscal 2012.

In October 2009, the FASB issued Accounting Standards Update (“ASU”) No. 2009-13, “Revenue Recognition: Multiple-Deliverable Revenue Arrangements-a consensus of the FASB Emerging Issues Task Force”, which eliminates the use of the residual method for allocating consideration, as well as the criteria that requires objective and reliable evidence of fair value of undelivered elements in order to separate the elements in a multiple-element arrangement. By removing the criterion requiring the use of objective and reliable evidence of fair value in separately accounting for deliverables, the recognition of revenue will more closely align with certain revenue arrangements. The standard also will replace the term "fair value" in the revenue allocation guidance with "selling price" to clarify that the allocation of revenue is based on entity-specific assumptions rather than assumptions of a marketplace participant. ASU No. 2009-13 is effective for revenue arrangements entered or materially modified in fiscal years beginning on or after June 15, 2010. The Company has determined it has no material impact on the financial condition or results of operations of the Company.  ASU No. 2009-13 became effective for us in fiscal 2012.

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NET INCOME / (LOSS) PER SHARE

3 Months Ended

Aug. 31, 2011

Notes to Financial Statements

NOTE 10. NET INCOME / (LOSS) PER SHARE

The following is a reconciliation of basic net income / (loss) per share to diluted net income / (loss) per share:

	Three Months Ended
	August 31, 2011			August 31, 2010
Numerator:
Net income (loss) from continuing operations	$	(676,200	)	$	156,625
Net Income from discontinued operations	$	7,366		$	333,585
Net income (loss)	$	(668,834	)	$	490,210
Denominator:
Weighted average shares outstanding-basic		2,603,172			416,409
Potential shares "in-the-money" under stock
option and warrant agreements		81,673			168,874
Less: Shares assumed respurchased under the
treasury stock method		-			(18,690	)
Weighted average shares outstanding-diluted		2,684,845			566,593
Basic net income (loss) per common share from continuing operations	$	(0.26	)	$	0.38
Diluted net income (loss) per common share from continuing operations	$	(0.26	)	$	0.36
Basic net income per common share from discontinued operations	$	0.00		$	0.81
Diluted net income per common share from discontinued operations	$	0.00		$	0.59
Basic net income (loss) per common share	$	(0.26	)	$	1.18
Diluted net income (loss) per common share	$	(0.26	)	$	0.87

Because the Company reported net income from continuing operations and from discontinued operations during the three months ended August31, 2010 as well as from discontinued operations during the three months ended August 31, 2011 the Company included the impact of its common stock equivalents in the computation of dilutive earnings per share for these periods. A net loss from  continuing operations was reported during the three months ended August 31, 2011 as such the Company excluded the impact of its common stock equivalents in the computation of dilutive earnings per share for these periods, as their effect would be anti-dilutive.  The following outstanding instruments were excluded from the above computation as their exercise price was greater than the company’s average stock price for the three months ended August 31, 2011:

Total dilutive instruments:
Stock options	62,658
Restricted stock units	-
Escrowed shares	-
Warrants	20,000
Total potential dilutive instruments	82,658

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CONDENSED CONSOLIDATED BALANCE SHEETS (USD $)	Aug. 31, 2011	May 31, 2011
Current assets:
Cash and cash equivalents	$ 706,130	$ 813,333
Accounts receivable, net of allowances of $581,736 and $571,078 at August 31, 2011 and May 31, 2011, respectively	1,663,960	1,393,679
Prepaid expenses and other assets	157,210	124,370
Total current assets	2,527,300	2,331,382
Equipment, net	223,174	208,725
Other assets	70,640	43,490
Intangible assets, net	940,907	962,338
Goodwill	8,606,441	8,606,441
TOTAL ASSETS	12,368,462	12,152,376
Current liabilities:
Accounts payable	436,859	598,277
Accrued liabilities	1,285,773	1,346,537
Accrued compensation	816,885	1,016,923
Current portion of long-term debt, related party	94,000	94,000
Current portion of long-term obligations	96,465	135,110
Deferred revenue	1,075,812	1,083,386
Liabilities of discontinued operations		102,258
Total current liabilities	3,805,794	4,376,491
Secured note payable and accrued interest, net-related party		464,301
Long-term debt, related party	94,000	118,476
Long-term obligations, less current portion	1,065,732	1,059,318
Deferred revenue - long-term		26,667
Common stock warrant liability	2,847	2,847
Total liabilities	4,968,373	6,048,100
Preferred shares, Class A series B, no par value, issued and outstanding 481,174 shares as of August 31, 2011	1,382,988
SHAREHOLDERS' EQUITY:
Preferred shares, Class A series A, no par value
Common shares, no par value, issued and outstanding 2,693,598 and 2,517,373 shares as of August 31, 2011 and May 31, 2011	140,623,226	140,209,385
Additional paid-in capital	31,239,057	31,061,264
Accumulated deficit	(164,829,197)	(164,160,363)
Accumulated other comprehensive loss	(1,015,985)	(1,006,010)
Total shareholders' equity	6,017,101	6,104,276
TOTAL LIABILITIES, PREFERRED STOCK AND SHAREHOLDERS' EQUITY	$ 12,368,462	$ 12,152,376