Stockholders' Equity

3 Months Ended

Nov. 30, 2011

Notes to Financial Statements

Stockholders' Equity

NOTE 5 — STOCKHOLDERS EQUITY

PREFERRED STOCK:

On May 19, 2011, the Company effected a one-for-four reverse stock split. All share and per share information have been restated to retroactively show the effect of this stock split. The reverse split was approved by a majority of the Company’s shareholders on March 24, 2011.

The Company is authorized to issue up to 10,000,000 shares of preferred stock, in one or more series, and to determine the price, rights, preferences and privileges of the shares of each such series without any further vote or action by the stockholders. The rights of the holders of common stock will be subject to, and may be adversely affected by, the rights of the holders of any shares of preferred stock that may be issued in the future.  In January 2003, our Board of Directors authorized up to 4,500,000 shares of Series A Convertible Preferred Stock.  Each share of Series A Convertible Preferred stock has a par value of $0.001 and is convertible into one-half share of common stock in upon a cash payment by the holder to the Company of $0.40 per common share.  The Series A Convertible Preferred Stock is entitled to receive, in preference to the common stock, of noncumulative dividends, if declared by the Board of Directors, and a claim on the Company's assets upon any liquidation of the Company senior to the common stock.  These preferred shares are not entitled to voting rights. There are presently outstanding 129,062 shares of Series A Preferred Stock.

On March 30, 2003, the Company completed the private placement of Units pursuant to the terms of a Unit Purchase Agreement (the “Units”) with accredited investors. Each Unit consists of the following underlying securities: (i) three shares of the Company’s common stock; (ii) one share of Series A Convertible Preferred Stock, par value $.001 per share; and (iii) one three-year warrant to purchase one share of common stock at a per share price of $0.30. The warrants expired on March 31, 2006. Each share of Series A Convertible Preferred Stock is convertible into one half share of the Company’s common stock in exchange for $0.40 per common share ($.20 for each Series A Convertible Preferred share converted). The securities underlying the Units are not to be separately tradable or transferable apart from the Units until such time as determined by the Company’s Board of Directors. A total of 4,032,743 Units were issued. As of November 30, 2010 and August 31, 2011, there were 129,062 and 129,062 Units outstanding that had not been separated, respectively. These units are presented as their underlying securities on our balance sheet and consist of 64,531 shares of Series A Preferred Stock and 96,797 shares of common stock which is included in the issued and outstanding shares.

Below is a table detailing the outstanding Series A Convertible Preferred Stock shares outstanding during the last two fiscal years:

				Number of						Weighted Avg
	Preferreds			Common Shares			Proceeds if			Per Common Sh
	Outstanding			Convertible			Converted			Exercise Price
Outstanding, August 31, 2010		261,762			130,881		$	52,352		$	0.40
Expired/Retired		—			—			—		$	—
Converted		(132,700	)		(66,350	)		(26,540	)	$	0.40
Issued		—			—			—		$	—
Outstanding, August 31, 2011		129,062			64,531		$	25,812		$	0.40
Expired/Retired		—			—			—		$	0.40
Converted		—			—			—		$	—
Issued		—			—			—		$	—
Outstanding, November 30, 2011		129,062			64,531		$	25,812		$	0.40

Our Board of Directors authorized the separation of the Units into their component parts in July 2004, February 2005, April 2008, March 2010 and July 2011. The table below describes the proceeds received for the conversion of preferred shares into common stock:

Date of Conversion	Proceeds from Conversion	Further Description and Remarks
July-August 2004	$487,523	During July and August 2004, holders of 2,437,614 Units contributed $487,523 to convert 2,437,614 shares of Series A. Convertible Preferred stock into 4,875,228 shares of common stock.
February 2005	$230,393	During February 2005, holders of 1,151,967 Units contributed $230,393 to convert 1,151,967 shares of Series A. Convertible Preferred stock into 2,303,934 shares of common stock.
April/June 2008	$29,460	During April and June 2008, holders of 147,300 Units contributed $29,460 to convert 147,300 shares of Series A. Convertible Preferred stock into 294,600 shares of common stock.
March/April 2010	$6,820	During March and April 2010, holders of 34,100 Units contributed $6,820 to convert 34,100 shares of Series A. Convertible Preferred stock into 68,200 shares of common stock.
July 2011	$0	During July 2011, holders of 132,700 Units elected to relinquish conversion of 132,700 shares of Convertible Preferred stock as part of splitting their Units.

SUBSCRIBED COMMON STOCK:

As of November 30, 2011 and August 31, 2011, there were no shares of subscribed stock issuable.

COMMON STOCK:

On May 19, 2011, the Company effected a one-for-four reverse stock split. All share and per share information have been restated to retroactively show the effect of this stock split. The reverse split was approved by a majority of the Company’s shareholders on March 24, 2011.

Below are recent sales of unregistered securities:

Date of Sale	Proceeds from Sale	Further Description and Remarks
October 11, 2010	$25,000	On October 11, 2010, the Company sold 1,666,667 (pre-split) shares of common stock to a non-related accredited investor at $0.015 per share.
January 18, 2011	$50,000	On January 18, 2011, the Company sold 3,333,333 (pre-split) shares of common stock to a non-related accredited investor at $0.015 per share.
July 05, 2011	$100,000	On July 05, 2011, the Company sold 2,500,000 (post-split) shares of common stock to a non-related accredited investor at $0.04 per share.
October 19, 2011	$25,000	On October 19, 2011, the Company sold 625,000 (post-split) shares of common stock to a non-related accredited investor at $0.04 per share.

NON-CONTROLLING INTEREST

On February 27, 2009, in connection with the Technology Agreement we entered into with Institut für Umwelttechnologien GmbH, a German Company (“IUT”) whereunder the parties have agreed that the Company’s marketing rights have been transferred to its subsidiary, Oncologix Corporation and have issued IUTM 10% of the equity ownership of that subsidiary. As of February 27, 2009, the value of the non-controlling interest was $212. It was determined at August 31, 2010 the value of the investment in IUTM was impaired. Accordingly, we recorded an impairment loss in the amount of $3,186 for the year ended August 31, 2010. As of November 30, 2011, $3,676 cumulative net loss was attributable to the non-controlling interest.

On September 23, 2010, the Company signed a Memorandum of Understanding with Institut für Umwelttechnologien GmbH and IUT Medical GMBH confirming certain understandings among the parties with respect to their future relationships and business activities as originally contemplated in their Technology Agreement of February 27, 2009, which was reaffirmed.

WARRANTS:

At November 30, 2011 and August 31, 2011, the Company did not have any outstanding warrants.

STOCK OPTIONS:

On May 19, 2011, the Company effected a one-for-four reverse stock split. All share and per share information have been restated to retroactively show the effect of this stock split. The reverse split was approved by a majority of the Company’s shareholders on March 24, 2011.

The Company is authorized to issue up to 4,600,000 shares of common stock under its 1997 Stock Incentive Plan. Shares may be issued as incentive stock options, non-statutory stock options, deferred shares or restricted shares. Options are granted at the fair market value of the common stock on the date of the grant and have terms of up to ten years.

The Company is authorized to issue up to 7,500,000 shares of common stock under its 2000 Stock Incentive Plan. Shares may be issued as incentive stock options, non-statutory stock options, deferred shares or restricted shares. Options are granted at the fair market value of the common stock on the date of the grant and have terms of up to ten years. The 2000 Stock Incentive Plan also provides for an annual grant of options to members of our Board of Directors. For fiscal years ended August 31, 2010, 2009 and 2008, our Board of Directors have elected to waive the grant of these annual options.

ASC 718 requires the estimation of forfeitures when recognizing compensation expense and that this estimate of forfeitures be adjusted over the requisite service period should actual forfeitures differ from such estimates. Changes in estimated forfeitures are recognized through a cumulative adjustment, which is recognized in the period of change and which impacts the amount of unamortized compensation expense to be recognized in future periods.

ASC 718 requires that modification of the terms or conditions of an equity award is to be treated as an exchange of the original award for a new award. This event is accounted for as if the entity repurchases the original instrument by issuing a new instrument of equal or greater value, incurring additional compensation cost for any incremental value. On January 7, 2011, the Company’s Board of Directors granted 53,750 options to current board members in exchange for the retirement of 268,750 stock options. The Company recorded $465 in stock compensation expense as a result of this transaction.

During the three months ended November 30, 2011 and 2010, we granted nil options from the stock incentive plans described above, respectively. During the three months ended November 30, 2011 and 2010, zero options were exercised, respectively; nil options were forfeited, respectively; and nil options were expired, respectively. During the three months ended November 30, 2011 and 2010, $0 and $0 was expensed as stock based compensation, respectively. Additional information relative to our employee options outstanding at November 30, 2011 is summarized as follows:

	Number of					Weighted Average
	Options			Option Price		Exercise Price
	Granted			Per Share		Per Share
Outstanding, August 31, 2010		733,335			$0.66 - $29.50	$	2.20
Granted		53,750			0.12		0.12
Exercised		—			—		—
Cancelled		(490,000	)		$0.17 - $1.33		2.16
Outstanding, August 31, 2011		297,085			$0.66 - $5.32	$	2.02
Granted
Exercised		—			—		—
Cancelled		—					—
Outstanding, November 30, 2011		297,085			$0.17 - $1.29	$	1.43

The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (the difference between our closing stock price on the last trading day of the first quarter of fiscal 2012 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on November 30, 2011.

	Options		Options
	Outstanding		Exercisable
Number of options		297,085		297,085
Aggregate intrinsic value of options	$	—	$	—
Weighted average remaining contractual term (years)		2.57		2.57
Weighted average exercise price	$	1.43	$	1.43

Expected volatility is based primarily on historical volatility. Historical volatility is computed using weekly average pricing observations for an applicable historic period. We believe this method produces an estimate that is representative of our expectations of the future volatility over the expected term of our options. We currently have no reason to believe future volatility over the expected life of these options is likely to differ materially from historical volatility. The weighted-average expected life is based upon share option exercises, pre and post vesting terminations and share option term expirations. The risk-free interest rate is based on the U.S. treasury security rate estimated for the expected life of the options at the date of grant.

We have 6,362,418 and 4,525,000 shares of common stock available for future issuance under our 2000 Stock Incentive Plan and 1997 Stock Incentive Plan, respectively, as of November 30, 2011. Under the 2000 Stock Incentive Plan and 1997 Stock Incentive Plan, the price of the granted common stock options are equal to the fair market value of such shares on the date of grant. Both of these plans have been approved by our shareholders.