Delaware
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95-4106894
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(State or other jurisdiction
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(I.R.S. Employer Identification No.)
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of incorporation or organization)
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Large Accelerated Filer
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Accelerated Filer
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Non-accelerated filer
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Smaller Reporting Company [x]
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Class
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Outstanding January 7, 2013
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Common Stock, par value $0.0001 per share
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72,900,206 shares
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Index
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Page No.
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||
PART I.
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FINANCIAL INFORMATION
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||
ITEM 1.
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Financial Statements (Unaudited)
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||
Condensed Balance Sheets as of November 30, 2012 and February 29, 2012
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4
|
||
Condensed Statements of Operations for the Three and Nine months Ended November 30, 2012 and 2011
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5
|
||
Condensed Statements of Cash Flows for the Nine months Ended November 30, 2012 and 2011
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6
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||
Notes to Condensed Financial Statements
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7
|
||
ITEM 2.
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Management's Discussion and Analysis of Financial Condition and Results of Operations
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14
|
|
ITEM 4T.
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Controls and Procedures
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19
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PART II.
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OTHER INFORMATION
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||
ITEM 2.
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Unregistered Sales of Equity Securities and Use of Proceeds
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20
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ITEM 6.
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Exhibits
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20
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SIGNATURES AND CERTIFICATIONS
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21
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November 30, 2012
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February 29, 2012
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|||||||
ASSETS
|
||||||||
Current assets:
|
||||||||
Cash and cash equivalents
|
$ | 39,131 | $ | 6,260 | ||||
Accounts receivable, net of allowance for doubtful accounts of $50,000 and $60,000 at November 30, 2012 and February 29, 2012, respectively
|
740,627 | 794,704 | ||||||
Inventory - current
|
1,000,000 | 1,000,000 | ||||||
Other current assets
|
390,515 | 535,768 | ||||||
Total current assets
|
2,170,273 | 2,336,732 | ||||||
Property, plant, and equipment, net
|
72,355 | 198,138 | ||||||
Inventory, non-current, net of allowance for obsolete inventory of $1,369,094 and $1,563,066 at November 30, 2012 and February 29, 2012, respectively
|
1,440,489 | 1,604,000 | ||||||
Total assets
|
$ | 3,683,117 | $ | 4,138,870 | ||||
LIABILITIES AND STOCKHOLDERS' DEFICIT
|
||||||||
Current liabilities:
|
||||||||
Bank overdraft
|
$ | - | $ | 16,068 | ||||
Accounts payable
|
984,058 | 770,507 | ||||||
Accrued expenses
|
1,473,142 | 1,019,959 | ||||||
Customer advances
|
61,737 | 57,211 | ||||||
Notes payable
|
721,000 | 150,000 | ||||||
Convertible notes payable, net of discount
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1,138,301 | 1,064,644 | ||||||
Notes payable and accrued interest- related party
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17,017,778 | 12,562,743 | ||||||
Total current liabilities
|
21,396,016 | 15,641,132 | ||||||
Convertible note payable, net of discount
|
- | 96,786 | ||||||
Convertible promissory note Payable, net of discount
|
1,075,523 | - | ||||||
Total liabilities
|
22,471,539 | 15,737,918 | ||||||
Commitments and contingencies
|
||||||||
Stockholders' deficit :
|
||||||||
Common stock, $0.0001par value; 150,000,000 shares authorized 72,900,206 and 71,942,669 issued and outstanding at November 30, 2012 and February 29, 2012
|
7,290 | 7,194 | ||||||
Additional paid-in capital
|
395,194,422 | 393,801,622 | ||||||
Accumulated deficit
|
(413,990,134 | ) | (405,407,864 | ) | ||||
Total stockholders' deficit
|
(18,788,422 | ) | (11,599,048 | ) | ||||
Total liabilities and stockholders' deficit
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$ | 3,683,117 | $ | 4,138,870 | ||||
Three Months
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Nine Months
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|||||||||||||||
2012
|
2011
|
2012
|
2011
|
|||||||||||||
Net Revenues
|
$ | 1,215,024 | $ | 527,185 | $ | 2,286,496 | $ | 2,093,955 | ||||||||
Cost of goods sold
|
644,648 | 341,802 | 1,104,674 | 997,948 | ||||||||||||
Gross Profit
|
570,376 | 185,383 | 1,181,822 | 1,096,007 | ||||||||||||
Expenses
|
||||||||||||||||
Engineering, research and development expenses
|
312,262 | 337,631 | 1,008,954 | 993,411 | ||||||||||||
Selling, general and administrative expenses
|
3,496,624 | 2,895,689 | 8,024,082 | 10,755,327 | ||||||||||||
Total costs and expenses
|
3,808,886 | 3,233,320 | 9,033,036 | 11,478,738 | ||||||||||||
Loss from operations
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(3,238,510 | ) | (3,047,937 | ) | (7,851,214 | ) | (10,652,731 | ) | ||||||||
Other (income) and expense
|
||||||||||||||||
Interest expense, net
|
1,009,131 | 672,372 | 2,834,226 | 1,176,358 | ||||||||||||
(Gain) loss on settlement of debt
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- | (447,585 | ) | - | (714,340 | ) | ||||||||||
Other (income) expense, net
|
(2,095,000 | ) | (85 | ) | (2,103,166 | ) | (15,036 | ) | ||||||||
Total other (income) expense
|
(1,085,869 | ) | 224,702 | 731,060 | 446,982 | |||||||||||
Net Loss
|
$ | (2,152,641 | ) | $ | (3,272,639 | ) | $ | (8,582,274 | ) | $ | (11,099,713 | ) | ||||
Total basic and diluted loss per share
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$ | (0.03 | ) | $ | (0.05 | ) | $ | (0.12 | ) | $ | (0.17 | ) | ||||
Weighted average shares used to
compute basic and diluted income (loss) per share*
|
72,750,310 | 70,131,472 | 72,381,581 | 66,621,897 |
2012
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2011
|
|||||||
Cash flow from operating activities:
|
$ | (8,582,274 | ) | $ | (11,099,713 | ) | ||
Net Loss
|
||||||||
Adjustments to reconcile Net loss to net cash used in operating activities
|
||||||||
Depreciation Expense
|
125,783 | 137,440 | ||||||
Bad debt expense
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(4,227 | ) | - | |||||
Amortization of debt discount
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1,806,354 | 366,830 | ||||||
(Gain) Loss on settlement of debt
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- | (714,340 | ) | |||||
Stock issued for services
|
316,000 | 510,000 | ||||||
Provision for inventory obsolescence
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(193,972 | ) | (154,109 | ) | ||||
Amortization of prepaid shares
|
393,328 | 266,135 | ||||||
Fair market value of stock options granted
|
204,961 | 3,750,513 | ||||||
Beneficial conversion feature on convertible debt
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- | 70,641 | ||||||
(Increase) decrease in:
Accounts receivable
|
58,304 | (250,687 | ) | |||||
Inventory
|
357,486 | 395,143 | ||||||
Other current assets and deposit
|
(248,075 | ) | (33,326 | ) | ||||
Increase (decrease) in:
|
||||||||
Accounts payable, customer deposit and accrued expenses
|
1,624,993 | 763,895 | ||||||
Net cash used in operations
|
(4,141,339 | ) | (5,991,578 | ) | ||||
Financing activities:
|
||||||||
Issuance of common stock
|
152,000 | 1,453,520 | ||||||
Proceeds from notes payable
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2,671,000 | 3,812,000 | ||||||
Payments on notes payable
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(2,143,750 | ) | (207,500 | ) | ||||
Proceeds from notes payable-related party, net
|
3,494,960 | 975,000 | ||||||
Net cash provided by financing activities:
|
4,174,210 | 6,033,020 | ||||||
Net increase(decrease) in cash & cash equivalents
|
32,871 | 41,442 | ||||||
Cash and cash equivalents at beginning of period
|
6,260 | 104,815 | ||||||
Cash and cash equivalents at end of period
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$ | 39,131 | $ | 146,257 | ||||
Supplemental disclosures of cash flow information
|
||||||||
Cash paid during the period for:
|
||||||||
Interest
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$ | 25,780 | $ | 60,136 | ||||
Income taxes
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- | - |
November 30, 2012
|
February 29, 2012
|
|||||||
Raw materials
|
$ | 1,964,797 | $ | 1,812,523 | ||||
Finished goods
|
1,844,786 | 2,354,543 | ||||||
3,809,583 | 4,167,066 | |||||||
Reserve for potential product obsolescence
|
(1,277,148 | ) | (1,460,683 | ) | ||||
Discount on long term inventory
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(91,946 | ) | (102,383 | ) | ||||
2,440,489 | 2,604,000 | |||||||
Non-current portion
|
(1,440,489 | ) | (1,604,000 | ) | ||||
Current portion
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$ | 1,000,000 | $ | 1,000,000 | ||||
November 30, 2012
|
February 29, 2012
|
|||||||
Machinery and equipment
|
$ | 964,111 | $ | 964,111 | ||||
Furniture and fixtures
|
163,302 | 163,302 | ||||||
Leasehold improvements
|
485,080 | 485,080 | ||||||
1,612,493 | 1,612,493 | |||||||
Less accumulated depreciation
|
(1,540,138 | ) | (1,414,355 | ) | ||||
Property, plant and equipment, net
|
$ | 72,355 | $ | 198,138 |
November 30, 2012
|
February 29, 2012
|
|||||||
Demand notes payable, at 10%
|
$ | 721,000 | $ | 150,000 | ||||
Convertible Promissory Note dated August 10, 2012, due August 10, 2017, convertible into shares of our common stock at a price of $0.76 per share. The note carries an interest rate of 7% with interest only payments due on the 10th of each month with the principal payment due on the maturity date.
|
708,520 | - | ||||||
Convertible Promissory Note dated October 2, 2012, due October 2, 2017, convertible into shares of our common stock at a price of $0.76 per share. The note carries an interest rate of 7% with interest only payments due on the 2nd of each month with the principal payment due on the maturity date.
|
367,003 | - | ||||||
Convertible Promissory Note dated November 2, 2012, due January 4, 2013, convertible into shares of our common stock at a price of $0.76 per share. The note carries an interest rate of 7% with interest only payments due on the 2nd of each month with the principal payment due on the maturity date.
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350,000 | - | ||||||
Senior secured convertible note dated September 23, 2011, due March 23, 2013, with 12 monthly payments commencing April 23, 2012 of $306,250 per month. The notes have a stated interest rate of 0%, with prepaid interest of $175,000. Balance net of Beneficial Conversion Feature
|
788,301 | 1,161,430 | ||||||
2,934,824 | 1,311,430 | |||||||
Less: Current portion
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$ | 1,859,301 | $ | 1,214,644 | ||||
Long-term portion
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$ | 1,075,523 | $ | 96,786 |
November 30, 2012
|
February 29, 2012
|
|||||||
Accrued payroll and related expenses
|
$ | 1,444,957 | $ | 993,652 | ||||
Accrued interest
|
17,880 | 82 | ||||||
Other
|
10,305 | 26,225 | ||||||
Total
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$ | 1,473,142 | $ | 1,019,959 |
2006 Plan
|
|||||||
Weighted-Average Exercise Price
|
Aggregate Intrinsic Value
|
Number of Options
|
|||||
|
|
|
|||||
Outstanding, February 29, 2012
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$0.75-$1.00
|
$0.00
|
6,268,500
|
||||
Cancelled
|
$0.75
|
(313,000)
|
|||||
Granted
|
$0.75
|
566,500
|
|||||
Outstanding, November 30, 2012
|
$0.75-$1.00
|
$0.00
|
6,522,000
|
Options Outstanding
|
Exercisable Options
|
||||||||||||||||||
Range of Exercise
Price
|
Number
|
Weighted Average Remaining Life
|
Weighted Average Exercise Price
|
Weighted Average Remaining Life
|
Number
|
Weighted Average Exercise Price
|
|||||||||||||
$0.75-$1.00
|
6,522,000
|
2.28 years
|
$
|
0.80
|
1.84 years
|
5,162,328
|
$
|
0.78
|
Number of Shares
|
Exercise Prices
|
||
Outstanding, February 29, 2012
|
31,009,738
|
$0.75-$4.00
|
|
Granted
|
406,941
|
$1.00
|
|
Expired
|
(983,390)
|
$3.00-$4.00
|
|
Outstanding, November 30, 2012
|
30,433,289
|
$0.75-$4.00
|
Range of Exercise Prices
|
Stock Warrants Outstanding
|
Stock Warrants Exercisable
|
Weighted-Average Remaining Contractual Life
|
Weighted-Average Exercise Price of Warrants Outstanding
|
Weighted-Average Exercise Price of Warrants Exercisable
|
Intrinsic Value
|
||||||
$1.00
|
406,941
|
406,941
|
56 months
|
$1.00
|
$1.00
|
$0.00
|
||||||
$0.75-$1.00
|
6,225,000
|
6,225,000
|
46 months
|
$0.99
|
$0.99
|
$0.00
|
||||||
$1.00
|
16,722,787
|
16,722,787
|
45 months
|
$1.00
|
$1.00
|
$0.00
|
||||||
$1.50
|
155,000
|
155,000
|
40 months
|
$1.50
|
$1.50
|
$0.00
|
||||||
$0.75-1.50
|
1,109,198
|
1,109,198
|
37 months
|
$1.17
|
$1.17
|
$0.00
|
||||||
$1.50
|
156,000
|
156,000
|
33 months
|
$1.50
|
$1.50
|
$0.00
|
||||||
$1.50
|
704,000
|
704,000
|
32 months
|
$1.50
|
$1.50
|
$0.00
|
||||||
$1.50
|
350,642
|
350,642
|
29 months
|
$1.50
|
$1.50
|
$0.00
|
||||||
$0.75-$2.00
|
58,000
|
58,000
|
25 months
|
$1.78
|
$1.78
|
$0.00
|
||||||
$2.00
|
725,721
|
725,721
|
22 months
|
$2.00
|
$2.00
|
$0.00
|
||||||
$0.75-2.00
|
3,650,000
|
3,650,000
|
19 months
|
$1.03
|
$1.03
|
$0.00
|
||||||
$3.00
|
170,000
|
170,000
|
12 months
|
$3.00
|
$3.00
|
$0.00
|
||||||
30,433,289
|
30,433,289
|
2012
|
2011
|
|||||||
United States
|
$ | 1,488,536 | $ | 1,511,131 | ||||
Canada
|
76,197 | 467,184 | ||||||
Europe
|
54,261 | 59,247 | ||||||
Asia
|
631,058 | 34,725 | ||||||
Other
|
36,444 | 21,668 | ||||||
Total
|
$ | 2,286,496 | $ | 2,093,955 |
·
|
Our ability to generate positive cash flow from operations;
|
·
|
Our ability to obtain additional financing to fund our operations;
|
·
|
Our business development and operating development; and
|
·
|
Our expectations of growth in demand for our products.
|
10.79
|
Demand Promissory Note dated September 6, 2012 by and between the Company and Warren Breslow in the original principal amount of $500,000.
|
10.80
|
Demand Promissory Note dated September 27, 2012 by and between the Company and Warren Breslow in the original principal amount of $300,000.
|
10.81
|
Demand Promissory Note dated October 19, 2012 by and between the Company and Warren Breslow in the original principal amount of $250,000.
|
10.82
|
Demand Promissory Note dated October 25, 2012 by and between the Company and Warren Breslow in the original principal amount of $300,000.
|
10.83
|
Demand Promissory Note dated November 2, 2012 by and between the Company and Warren Breslow in the original principal amount of $135,000.
|
10.84
|
Demand Promissory Note dated November 30, 2012 by and between the Company and Warren Breslow in the original principal amount of $100,000.
|
10.85
|
Convertible Promissory Note dated October 2, 2012 by and between the Company and Peter Dalrymple in the original principal amount of $500,000.
|
10.82
|
Demand Promissory Note dated November 2, 2012 by and between the Company and Warren Breslow in the original principal amount of $350,000.
|
By:
|
/s/ Melvin Gagerman
|
Melvin Gagerman
|
|
Chief Executive Officer
|
|
By:
|
/s/ Melvin Gagerman
|
Melvin Gagerman
|
|
Chief Financial Officer
|
|
1.
|
The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
|
2.
|
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company for the periods indicated.
|
Date: January 14, 2013
|
By:
|
/s/ Melvin Gagerman
|
Melvin Gagerman
Chief Executive Officer, Chief
Financial Officer, Chief Accounting
Officer
|
5.1.
|
The number of Conversion Shares issuable upon conversion of this Note or any portion thereof and the Conversion Price therefor are subject to adjustment upon the occurrence of any of the following events between the Issuance Date and the sooner of the date that (i) all obligations hereunder are repaid or (ii) this Note is converted into Conversion Shares:
|
5.2.
|
Stock Dividends and Splits. If the Company, at any time while this Note is outstanding, (i) pays a stock dividend on its Common Stock or otherwise makes a distribution on any class of capital stock that is payable in shares of Common Stock (which, for avoidance of doubt, shall not include any shares of Common Stock issued by the Company upon conversion of this Note), (ii) subdivides outstanding shares of Common Stock into a larger number of shares, (iii) combines outstanding shares of Common Stock into a smaller number of shares, or (iv) issues by reclassification of shares of the Common Stock any shares of capital stock of the Company, then in each such case the Conversion Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock outstanding immediately before such event and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such event. Any adjustment made pursuant to clause (i) of this paragraph shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution, and any adjustment pursuant to clause (ii), (iii) or (iv) of this paragraph shall become effective immediately after the effective date of such subdivision, combination or reclassification.
|
5.3.
|
Pro Rata Distributions. If the Company, at any time while this Note remains outstanding, shall distribute to all holders of Common Stock (and not to Holder) evidences of its indebtedness or assets or rights or warrants to subscribe for or purchase any security, then in each such case the Conversion Price shall be determined by multiplying such Conversion Price in effect immediately prior to the record date fixed for determination of stockholders entitled to receive such distribution (“Distribution Record Date”) by a fraction of which the denominator shall be the closing bid price determined as of the Distribution Record Date, and of which the numerator shall be such closing bid price on such Distribution Record Date less the then fair market value at such Distribution Record Date of the portion of such assets or evidence of indebtedness so distributed applicable to one outstanding share of the Common Stock as determined by the Board of Directors in good faith. In either case the adjustments shall be described in a statement provided to the Holder of the portion of assets or evidences of indebtedness so distributed or such subscription rights applicable to one share of Common Stock. Such adjustment shall be made whenever any such distribution is made and shall become effective immediately after the Distribution Record Date mentioned above.
|
5.4.
|
Issuance of Convertible Securities. If, at any time while this Note remains outstanding, the Company issues or sells any Convertible Securities and the lowest price per share for which one share of Common Stock is issuable upon the conversion, exercise or exchange thereof is less than the then Conversion Price of this Note (such lower price, the “Dilutive Price”), then the Conversion Price of this Note shall be adjusted to reflect such Dilutive Price. Such adjustment shall be made upon the issuance or sale of the Convertible Security bearing a Dilutive Price. No further adjustment of the Conversion Price shall be made upon the actual issuance of such shares of Common Stock upon conversion, exercise or exchange of such Convertible Securities. No adjustment will be made to the Conversion Price of this Note with respect to any Convertible Securities issued or existing prior to the Issuance Date. The Company shall notify the Holder in writing, no later than three (3) Business Days following the issuance of any Convertible Securities bearing a Dilutive Price, indicating therein the applicable issuance price, or applicable reset price, exchange price, conversion price and other pricing terms.
|
5.5.
|
Adjustment for Reorganization, Consolidation, Merger. In case of any reorganization, reclassification or similar event involving the Company (or of any other corporation the stock or other securities of which are at the time receivable on the conversion of this Note) while this Note remains outstanding, or in the events that the Company shall consolidate with or merge with another entity during such time as this Note remains outstanding, then, and in each such case, the Holder, upon the conversion of this Note at any time after the consummation of such reorganization, consolidation or merger, will be entitled to receive, in lieu of the stock or other securities and property receivable upon the conversion of this Note prior to such consummation, the stock or other securities or property to which the Holder would have been entitled upon the consummation of such reorganization, consolidation or merger if the Holder had converted this Note immediately prior thereto, subject to further adjustment as provided in this Note, and, in such case, appropriate adjustment (as determined in good faith by the Board of Directors of the Company) will be made in the application of the provisions in this Article 5 with respect to the rights and interests thereafter of the Holder, to the end that the provisions set forth in this Article 5 will thereafter be applicable, as nearly as reasonably may be, in relation to any securities or other property thereafter deliverable upon the conversion of this Note. The successor or purchasing corporation in any such reorganization, consolidation or merger (if other than the Company) will duly execute and deliver to the Holder a supplement hereto reasonably acceptable to the Holder acknowledging such entity's obligations under this Note and, in each such case, the terms of the Note will be applicable to the shares of stock or other securities or property receivable upon the conversion of this Note after the consummation of such reorganization, consolidation or merger.
|
5.6.
|
Calculations. All calculations under this Article 5 shall be made to the nearest cent or the nearest 1/100th of a share, as the case may be. For purposes of this Article 5, the number of shares of Common Stock deemed to be issued and outstanding as of a given date shall be the sum of the number of shares of Common Stock (excluding any treasury shares of the Company) issued and outstanding
|
5.7.
|
Restriction on Transfer. This Note and the Common Stock issuable upon conversion of this Note have not been registered under the Securities Act, or the securities laws of any state or other jurisdiction. Neither this Note nor the Common Stock issuable upon conversion of this Note nor any interest or participation herein may be reoffered, sold, assigned, transferred, pledged, encumbered or otherwise disposed of in the absence of such registration or unless such transaction is exempt from, or not subject to, registration. Each certificate representing the shares of Common Stock issuable upon conversion of this Note, shall bear a legend substantially in the following form:
|
i.
|
the Company fails to pay (i) the principal of this Note or (ii) any interest payable under this Note or (iii) any other amount due hereunder within five (5) Business Days after such amount becomes due and payable; or
|
ii.
|
the Company fails, for any reason (except pursuant to applicable law, judicial order, or by reason of Holder’s action or inaction) to issue and deliver the Conversion Shares upon conversion of this Note within ten (10) Business Days of the Company’s receipt of a valid and fully-completed Conversion Notice from Holder.
|
5.1.
|
The number of Conversion Shares issuable upon conversion of this Note or any portion thereof and the Conversion Price therefor are subject to adjustment upon the occurrence of any of the following events between the Issuance Date and the sooner of the date that (i) all obligations hereunder are repaid or (ii) this Note is converted into Conversion Shares:
|
5.2.
|
Stock Dividends and Splits. If the Company, at any time while this Note is outstanding, (i) pays a stock dividend on its Common Stock or otherwise makes a distribution on any class of capital stock that is payable in shares of Common Stock (which, for avoidance of doubt, shall not include any shares of Common Stock issued by the Company upon conversion of this Note), (ii) subdivides outstanding shares of Common Stock into a larger number of shares, (iii) combines outstanding shares of Common Stock into a smaller number of shares, or (iv) issues by reclassification of shares of the Common Stock any shares of capital stock of the Company, then in each such case the Conversion Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock outstanding immediately before such event and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such event. Any adjustment made pursuant to clause (i) of this paragraph shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution, and any adjustment pursuant to clause (ii), (iii) or (iv) of this paragraph shall become effective immediately after the effective date of such subdivision, combination or reclassification.
|
5.3.
|
Pro Rata Distributions. If the Company, at any time while this Note remains outstanding, shall distribute to all holders of Common Stock (and not to Holder) evidences of its indebtedness or assets or rights or warrants to subscribe for or purchase any security, then in each such case the Conversion Price shall be determined by multiplying such Conversion Price in effect immediately prior to the record date fixed for determination of stockholders entitled to receive such distribution (“Distribution Record Date”) by a fraction of which the denominator shall be the closing bid price determined as of the Distribution Record Date, and of which the numerator shall be such closing bid price on such Distribution Record Date less the then fair market value at such Distribution Record Date of the portion of such assets or evidence of indebtedness so distributed applicable to one outstanding share of the Common Stock as determined by the Board of Directors in good faith. In either case the adjustments shall be described in a statement provided to the Holder of the portion of assets or evidences of indebtedness so distributed or such subscription rights applicable to one share of Common Stock. Such adjustment shall be made whenever any such distribution is made and shall become effective immediately after the Distribution Record Date mentioned above.
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5.4.
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Subsequent Equity Sales. If, at any time while this Note remains outstanding, the Company sells or grants any option to purchase any Common Stock entitling any Person to acquire shares of Common Stock at an effective price per share that is lower than the then Conversion Price (such lower price, the “Base Conversion Price” and such issuance a “Dilutive Issuance”), then the Conversion Price of this Note and all other Notes outstanding then outstanding to Peter Dalrymple shall be adjusted to reflect such lower price. Such adjustment shall be made whenever such Common Stock bearing a Base Conversion Price is issued. The Company shall notify the Holder in writing, no later than three (3) Business Days following the issuance of any Common Stock subject to this Section 5.4, indicating therein the applicable issuance price, or applicable reset price, exchange price, conversion price and other pricing terms. For purposes of clarification, whether or not the Company provides notice pursuant to this Section 5.4, upon the occurrence of any Dilutive Issuance, the Holder is entitled to receive a number of Conversion Shares based upon the Base Conversion Price on or after the date of such Dilutive Issuance.
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5.5.
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Adjustment for Reorganization, Consolidation, Merger. In case of any reorganization, reclassification or similar event involving the Company (or of any other corporation the stock or other securities of which are at the time receivable on the conversion of this Note) while this Note remains outstanding, or in the events that the Company shall consolidate with or merge with another entity during such time as this Note remains outstanding, then, and in each such case, the Holder, upon the conversion of this Note at any time after the consummation of such reorganization, consolidation or merger, will be entitled to receive, in lieu of the stock or other securities and property receivable upon the conversion of this Note prior to such consummation, the stock or other securities or property to which the Holder would have been entitled upon the consummation of such reorganization, consolidation or merger if the Holder had converted this Note immediately prior thereto, subject to further adjustment as provided in this Note, and, in such case, appropriate adjustment (as determined in good faith by the Board of Directors of the Company) will be made in the application of the provisions in this Article 5 with respect to the rights and interests thereafter of the Holder, to the end that the provisions set forth in this Article 5 will thereafter be applicable, as nearly as reasonably may be, in relation to any securities or other property thereafter deliverable upon the conversion of this Note. The successor or purchasing corporation in any such reorganization, consolidation or merger (if other than the Company) will duly execute and deliver to the Holder a supplement hereto reasonably acceptable to the Holder acknowledging such entity's obligations under this Note and, in each such case, the terms of the Note will be applicable to the shares of stock or other securities or property receivable upon the conversion of this Note after the consummation of such reorganization, consolidation or merger.
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5.6.
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Calculations. All calculations under this Article 5 shall be made to the nearest cent or the nearest 1/100th of a share, as the case may be. For purposes of this Article 5, the number of shares of Common Stock deemed to be issued and outstanding as of a given date shall be the sum of the number of shares of Common Stock (excluding any treasury shares of the Company) issued and outstanding
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5.7.
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Restriction on Transfer. This Note and the Common Stock issuable upon conversion of this Note have not been registered under the Securities Act, or the securities laws of any state or other jurisdiction. Neither this Note nor the Common Stock issuable upon conversion of this Note nor any interest or participation herein may be reoffered, sold, assigned, transferred, pledged, encumbered or otherwise disposed of in the absence of such registration or unless such transaction is exempt from, or not subject to, registration. Each certificate representing the shares of Common Stock issuable upon conversion of this Note, shall bear a legend substantially in the following form:
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i.
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the Company fails to pay (i) the principal of this Note or (ii) any interest payable under this Note or (iii) any other amount due hereunder within five (5) Business Days after such amount becomes due and payable; or
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ii.
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the Company fails, for any reason (except pursuant to applicable law, judicial order, or by reason of Holder’s action or inaction) to issue and deliver the Conversion Shares upon conversion of this Note within ten (10) Business Days of the Company’s receipt of a valid and fully-completed Conversion Notice from Holder.
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INCOME TAXES (Details)
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9 Months Ended | |
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Nov. 30, 2012
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Nov. 30, 2011
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INCOME TAXES [Abstract] | ||
Effective tax rate (in hundredths) | 0.00% | 0.00% |
SEGMENT INFORMATION (Tables)
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9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Nov. 30, 2012
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SEGMENT INFORMATION [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Revenues from customer geographical segments | Total net revenues from customer geographical segments are as follows for the nine months ended November 30, 2012 and 2011:
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INVENTORIES
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9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Nov. 30, 2012
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INVENTORIES [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
INVENTORIES | NOTE 3 – INVENTORIES Inventories, stated at the lower of cost (first in first out), or market consisted of the following:
We assessed the net realize-ability and the related potential obsolescence of inventory. In accordance with this assessment, management has recorded a reserve of $1,277,148 and $1,460,683 as of November 30, 2012 and February 29, 2012, respectively. Management has also recorded a discount on long term inventory of $91,946 and $102,383 as of November 30, 2012 and February 29, 2012, respectively. |