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OPTIONS AND WARRANTS
 6 Months Ended
Feb. 29, 2012
Notes to Financial Statements  
Note 9 - OPTIONS AND WARRANTS

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 six months ended February 29, 2012 and 2011, 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 February 29, 2012    25,000   $7.86 
             
 Exercisable at February 29, 2012    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 six months ended February 29, 2012, the Company issued 400,000 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 $64,200.

   Warrants  Weighted Average Exercise Price
       
 Outstanding, September 1, 2011    33,040,627   $0.19 
             
 Granted    400,000   $0.25 
             
 Expired/Cancelled    (1,000,002)  $0.60 
             
 Exercised    —      —   
             
 Outstanding, period ended February 29, 2012    32,440,625   $0.18 
             
 Exercisable, period ended February 29, 2012    32,440,625   $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 1.54 100,000   2.00
2009   0.15 *10,000,000 0.92 10,000,000   0.15
2009   0.15 *2,500,000 0.97 2,500,000   0.15
2009   0.15 *500,000 1.00 500,000   0.15
2009   0.15 *1,700,000 1.14 1,700,000   0.15
2009   0.15 *150,000 1.16 150,000   0.15
2009   0.15 *50,000 1.18 50,000   0.15
2009   0.15 *50,000 1.20 50,000   0.15
2009   0.15 *500,000 1.47 500,000   0.15
2009   0.15 *2,050,000 1.47 2,050,000   0.15
2011   0.30 6,600,625 3.69 6,600,625   0.30
2011   0.30 500,000 3.73 500,000   0.30
2011   0.10 6,840,000 4.14 6,840,000   0.10
2011   0.10 500,000 4.36 500,000   0.10
2012   0.25 400,000 4.71 400,000   0.25
Total     32,440,625   32,440,625    

 

As of February 29, 2012, 1,000,002 of the Company's issued and outstanding warrants have been cancelled.

* The 17,500,000 wrrants (“2009 Warrants”) issued in conjunction with the 2009 Convertible Debentures 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. On January 30, 2012, the Company extended respective exercise dates of the 2009 Warrants for one additional year from their original expiry dates.