Common Stock Options and Warrants

6 Months Ended

Jul. 31, 2013

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Disclosure of Compensation Related Costs, Share-based Payments [Text Block]

NOTE 8 - Common Stock Options and Warrants   

The Company's 2012 Stock Option Plan adopted by the Board of Directors on September 17, 2012 states that the exercise price of each option will be granted at an amount that equals the fair market value at the date of grant. All options vest at a time determined at the discretion of the Company's Board of Directors. All options expire if not exercised within 10 years from the date of grant, unless stated otherwise by the Board of Directors upon issuance.

The Company records compensation expense for the fair value of options granted under the Company's 2012 Stock Option Plan. The Company estimates the fair value of each stock option at the grant date by using the Black-Scholes option-pricing model.

On March 29, 2012, the Company issued stock options of 2,500,000 to the officers and directors. The options were priced at $0.06 per share and expire five years from the date of issuance. The fair value of the option grant was estimated on the date of grant utilizing the Black-Scholes option pricing model. The fair value of these options was determined to be $99,924 based on the following assumptions: expected life of options of 5 years, expected volatility of 305.3%, risk-free interest rate of 1.01% and no dividend yield.

On March 25, 2013 the Company issued stock options to purchase 4,000,000 shares of common stock to an individual providing contract CFO services to the Company, half of which vested upon issuance and twenty five percent will vest in each of the subsequent two years of service to the Company.  The options were priced at $0.02 per share and will expire five years from the date of issuance.  The fair value of the option grant was estimated on the date of grant utilizing the Black-Scholes option pricing model.  The fair value of these options was determined to be $79,498 Based on the following assumptions: expected life of the options of 5 years, expected volatility of 243.9%, risk-free interest rate of 0.80% and no dividend yield.  These options will be expensed over their vesting schedule.

On March 25, 2013 the Company issued stock options to purchase 500,000 shares of common stock to an individual providing contract accounting services to the Company, half of which vested upon issuance and the other half will vest after one year of service to the Company.  The options were priced at $0.02 per share and will expire five years from the date of issuance.  The fair value of the option grant was estimated on the date of grant utilizing the Black-Scholes option pricing model.  The fair value of these options was determined to be $9,937 Based on the following assumptions: expected life of the options of 5 years, expected volatility of 243.9%, risk-free interest rate of 0.80% and no dividend yield.  These options will be expensed over their vesting schedule.

Options	Number of Shares	Weighted Average Exercise Price
Outstanding at January 31, 2013	10,250,000	$0.17
Issued	4,500,000	$0.02
Exercised	-	-
Expired/Cancelled	-	-
Outstanding at July 31, 2013	14,750,000	$0.12
Exercisable at July 31, 2013	12,500,000	$0.14

The following table summarizes information about stock options at July 31, 2013:

Range of Prices	Weighted Average Number Outstanding	Contractual Life	Weighted Average Exercise Price	Weighted Average Number Exercisable	Weighted Average Exercise Price
$0.02	4,500,000	4.65 yrs	$0.02	2,250,000	$0.02
$0.05	2,000,000	2.81 yrs	$0.05	2,000,000	$0.05
$0.06	5,650,000	2.44 yrs	$0.06	3,150,000	$0.06
$0.08	500,000	1.48 yrs	$0.08	500,000	$0.08
$0.30	100,000	1.48 yrs	$0.30	100,000	$0.30
$0.60	2,000,000	2.35 yrs	$0.60	2,000,000	$0.60

On June 19, 2012 the Company issued 2,000,000 shares of common stock and a warrant to purchase 1,000,000 shares of common stock at $0.05 per share within a three year period.

On August 31, 2012, in connection with a note payable, the Company entered into a Warrant Purchase Agreement with an unaffiliated accredited investor. As part of the terms of the note, the Company issued a five year warrant to the lender to purchase 6,814,000 shares of Company common stock, exercisable at $0.02 per share. The fair value of these warrants at the date of grant was $132,332 using a Black Scholes option pricing model and the following assumptions: expected life of warrants is five years, expected volatility rate of 194.81%, risk free rate of 0.59%, and an exercise price of $0.02. The $132,332 was fully expensed on the date of issuance.

On January 7, 2013, in connection with a note payable, the Company entered into a Warrant for Purchase of Common Stock agreement with a related party investor. As stated in the agreement, the Company granted 1,000,000 shares of common stock, exercisable on or before January 7, 2016 at $0.02 per share. The fair value of these warrants at the date of grant was $25,417 using a Black Scholes option pricing model and the following assumptions: expected life of warrants is three years, expected volatility rate of 210.18%, risk free rate of 0.41%, and an exercise price of $0.02. The $25,417 was fully expensed on the date of issuance.

During the quarter ended July 31, 2013 the Company, for a total of $125,000, issued 6,250,000 shares of common stock at $0.02 per share.  In addition 3,125,000 warrants were issued to these investors which are  exercisable at $0.25 per share with a term of five years from the grant date.

Warrants	Number of Shares	Weighted Average Exercise Price
Outstanding at January 31, 2013	8,814,000	$0.02
Issued	4,000,000	$0.25
Exercised	-	-
Expired/Cancelled	-	-
Outstanding at July 31, 2013	12,814,000	$0.09
Exercisable at July 31, 2013	12,814,000	$0.09

On July 31, 2013, the Company had the following outstanding warrants:

Exercise Price	Number of Shares	Remaining Contractual Life	Exercise Price Times Number of Shares	Weighted Average Exercise Price
$0.02	1,000,000	2.44 yrs	$20,000	$0.02
$0.02	6,814,000	4.09 yrs	$136,280	$0.02
$0.05	1,000,000	1.89 yrs	$50,000	$0.05
$0.25	4,000,000	4.82 yrs	$1,000,000	$0.25

Fair Value Considerations:

GAAP establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. As presented in the tables below, this hierarchy consists of three broad levels:

Level 1 valuations:	Quoted prices in active markets for identical assets and liabilities.
Level 2 valuations:	Quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; and model-derived valuations whose inputs or significant value drivers are observable.
Level 3 valuations:	Significant inputs to valuation model are unobservable.

We classify assets and liabilities measured at fair value in their entirety based on the lowest level of input that is significant to their fair value measurement. We measure all our stock options issued to contractors that are required to be measured at fair value on a recurring basis using Level 3 inputs. Level 3 inputs are unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.  While we had no outstanding instruments as of January 31, 2013 that required fair value measurement, 4,500,000 options were issued to contractors on March 25, 2013 which require fair value measurement for the unvested options on a quarterly basis.

The options were valued using the Black-Scholes option pricing model.  Based on the following assumptions: expected life of the options of 4.75 years, expected volatility of 232.3%, risk-free interest rate of 1.38% and a stock price of $0.03, the Company calculated an additional value for the unvested options of $22,179 which was recorded as stock option expense in the quarter ended July 31, 2013.

The following table sets forth a reconciliation of changes in the fair value of financial liabilities classified as Level 3 in the fair valued hierarchy:

Beginning balance as of period ended January 31, 2013	$	0
Grant date fair value of unvested options	$	44,717
Fair value adjustment	$	22,179
Balance as of period ended July 31, 2013	$	66,896