During the three and nine months ended November
30, 2012, two executives who are stockholders of the Company deferred $58,100 and $174,300 respectively, of compensation earned
during the period. The balance due to stockholders at November 30, 2012 and 2011, totaled $2,179,010 and $1,946,610, respectively.
The amounts are unsecured, non-interest bearing, and have no specific repayment terms; however, the Company does not expect to
repay these amounts within the next year.
Certain notes to related parties have conversion
features, whereby, at the holders option, the notes may be converted, in whole or in part upon written notice, into the
Companys common shares at a discount to the fair market value. The Company considered the value of the beneficial conversion
features of the notes, and when deemed material, recorded the beneficial conversion value as deferred financing costs and amortized
the amount over the period of the loan, charging interest expense. The convertible notes are to related parties, who have the majority
of the voting rights. The related parties have waived their conversion rights since the inception of these notes until such time
that the Companys market price of shares rise sufficiently or the Company amends the capital structure (through a reverse
split or increase in the authorized shares) or combination of all factors, whereby a conversion of any single note, or portion
thereof, will not exceed the authorized shares of the Company.
The above amounts are not necessarily indicative
of the amounts that would have been incurred had comparable transactions been entered into with independent parties.