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OPTIONS AND WARRANTS

3 Months Ended

Nov. 30, 2011

Stock Options

During November, 2007 the Board of Directors of the Company adopted and the stockholders at that time approved the 2007 Stock Plan (“the Plan”). The Plan provides both for the direct award or sale of shares and for the granting of options to purchase shares. Options granted under the plan may include qualified and non-qualified stock options. The aggregate number of shares that may be issued under the plan shall not exceed 750,000 shares of common stock, and are issuable to directors, officers, and employees of the Company. Awards under the plan will be granted as determined by Committees of the Board of Directors or by the Board of Directors. The options will expire after 10 years or 5 years if the option holder owns at least 10% of the common stock of the Company. The exercise price of a non-qualified option must be at least 85% of the market price on the date of issue. The exercise price of a qualified option must be at least equal to the market price or 110% of the market price on the date of issue if the option holder owns at least 10% of the common stock of the Company.

In November 2007, 200,000 stock options were granted with an exercise price equal to fair value at the date of grant. The term of the options granted under the Plan could not exceed 10 years and the stock options granted were vested immediately.

On August 1, 2008, we agreed to issue 30,000 stock options to certain board members for their services to the board.

On September 1, 2008 we granted 15,000 stock options to a certain officer and board member for his services performed as Chair of the Audit Committee and Chair of the Compensation Committee. The estimated value of the compensatory common stock purchase options granted to non-employees in exchange for services and financing expenses was determined using the Black-Scholes pricing model and the following assumptions: expected term of 10 years, a risk free interest rate of 3.97% to 4.40%, a dividend yield of 0% and volatility of 136.94% to 147.95%.

During the three months ended November 30, 2011 and 2010, the amount of the expense charged to operations for compensatory options granted in exchange for services was $-0- and $-0-, respectively.

The following table summarizes the changes in options outstanding and the related prices for the shares of the Company’s common stock issued to employees and non-employees of the Company. These options were granted in lieu of cash compensation for services performed.

	Shares		Weighted Average Exercise Price

Outstanding, September 1, 2011		25,000	$	7.86

Granted		-		-

Expired/Cancelled		-		-

Exercised		-		-

Outstanding, period ended November 30, 2011		25,000		7.86

Exercisable at November 30, 2011		25,000	$	7.86

Options Outstanding					Options Exercisable
Year	Exercise Price		Number of Shares Outstanding		Weighted Average Contractual Life (Years)		Number Exercisable		Weighted Average Exercise Price

2008	$	9.00		10,000		7.93		10,000	$	9.00
2009		7.10		15,000		8.01		15,000		7.10

Total				25,000				25,000

Stock Warrants

During the year ended August 31, 2011, the Company issued 14,440,625 warrants in connection with the sales of common stock and conversion of debt into common stock. The fair value of the warrants in connection with the allocation of sale and conversion was $536,283.

	Warrants			Weighted Average Exercise Price

Outstanding, September 1, 2011		33,040,627		$	0.19

Granted		-			-

Expired/Cancelled		(1,000,002	)	$	0.60

Exercised		-			-

Outstanding, period ended November 30, 2011		32,040,625			0.18

Exercisable, period ended November 30, 2011		32,040,625		$	0.18

	Warrants Outstanding						Warrants Exercisable
Year	Exercise Price		Number of Warrants Outstanding		Weighted Average Contractual Life (Years)		Number Exercisable		Weighted Average Exercise Price
2008	$	2.00		100,000		1.83		100,000		2.00
2009		0.15		*10,000,000		0.17		10,000,000		0.15
2009		0.15		*2,500,000		0.21		2,500,000		0.15
2009		0.15		*500,000		0.25		500,000		0.15
2009		0.15		*1,700,000		0.39		1,700,000		0.15
2009		0.15		*150,000		0.42		150,000		0.15
2009		0.15		*50,000		0.43		50,000		0.15
2009		0.15		*50,000		0.46		50,000		0.15
2009		0.15		*500,000		0.72		500,000		0.15
2009		0.15		*2,050,000		0.72		2,050,000		0.15
2011		0.30		6,600,625		3.98		6,600,625		0.30
2011		0.30		500,000		4.02		500,000		0.30
2011		0.10		6,840,000		4.43		6,840,000		0.10
2011		0.10		500,000		4.65		500,000		0.10
Total				32,040,625				32,040,625

As of November 30, 2011, 1,000,002 of the Company's issued and outstanding warrants have been cancelled.

* Pursuant to the terms of the debentures issued under the Genovese Agreement, the warrants contain an anti-dilution provision that states it is specifically agreed that in the event that the Company shall reduce the number of outstanding shares of Common Stock by combining such shares into a smaller number of shares, then, in such case, the then applicable Exercise Price per Warrant Share purchasable pursuant to the Warrant Certificate in effect at the time of such action will not be changed.