Watch for the expiration of Cliff's options (9/17/12) to see if there is sudden (and welcome) increase in shareholder value.

The Compensation Committee typically determines that the bonus shall take into consideration the achievement of revenue and profit goals and the achievement of specific strategic objectives.

During the fiscal year 2010, we paid Mr. Flowers a $62,500 discretionary bonus per his employment contract and we accrued $145,875 for Mr. Flowers’ interim CEO bonus. During the fiscal year 2009, we paid the following bonuses to our named executive officers: $250,000 to Mr. Goerner, our former CEO, for completion of his interim period on November 29, 2008, $50,000 to Mr. Flowers, our CFO, per his employment contract and $53,750 to Mr. Bibeau, our former Vice President of Business Development, for his milestones relating to our merger and acquisition activities. During fiscal 2008, we accrued $83,000 and $11,000, respectively, for Mr. Goerner and Mr. Bibeau’s bonuses as shown in the Summary Compensation Table.

We set the exercise price of stock options at the fair market value of our Common Stock on the date of grant. Fair market value is determined as the closing price of our stock on the grant date. We do not backdate options or grant options retroactively. We do not loan funds to employees to enable them to exercise stock options

Change in Control

We provide change in control benefits as an incentive to our key employees to remain with us despite uncertainties while a transaction is under consideration or pending. Our Chief Financial Officer is entitled to change in control benefit payments as specified in his employment contract which is described below

Outstanding Equity Awards

As of May 31, 2010

Employment Contracts

In connection with Mr. Flowers’ appointment as Chief Financial Officer on September 17, 2007, we entered into an Employment Agreement (the “Flowers Agreement”) with Mr. Flowers for an initial 120-day term if not terminated pursuant to the Flowers Agreement, with an extension period of one year and on a day-to-day basis thereafter. Pursuant to the Flowers Agreement, Mr. Flowers’ initial base salary was $225,000 per year and he is eligible to receive an annual merit bonus of up to 50% of his base salary, as determined in the sole discretion of the Board of Directors. Effective October 1, 2008 and October 5, 2009, Mr. Flowers’ base salary was increased to $231,750 and $291,750, respectively. Also pursuant to the Flowers Agreement and on the date of the Flowers Agreement, Mr. Flowers received a grant of non-qualified stock options to purchase 150,000 shares of our Common Stock and a grant of non-qualified stock options to purchase 600,000 shares of our Common Stock. Mr. Flowers’ right to exercise the foregoing stock options became fully vested on October 9, 2009, in connection with his appointment as Interim CEO. The Flowers Agreement also provides for Mr. Flowers to receive customary employee benefits, including health, life and disability insurance.

At May 31, 2010, the aggregate number of options outstanding was: Mr. Johnson – 1,200,000 shares, Ms. Felcyn – 950,000 shares, Mr. Falk -700,000 shares, Mr. Schrock – 250,000 shares and Mr. Mistry – 400,000 shares.

*Less than 1%

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