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EX-32.2 - CERTIFICATION OF CFO PER SECTION 906 - Oncologix Tech Inc.oncologixexhibit32-022810.htm
EX-32.1 - CERTIFICATION OF CEO PER SECTION 906 - Oncologix Tech Inc.oncologixexhibit321-022810.htm
EX-31.1 - CERTIFICATION OF CEO PER SECTION 302 - Oncologix Tech Inc.oncologixexhibit311-022810.htm
EX-31.2 - CERTIFICATION OF CFO PER SECTION 302 - Oncologix Tech Inc.oncologixexhibit312-022810.htm

 
 

 




 

U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q/A
(Mark One)
x           QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
 
For the quarterly period ended February 28, 2010.
 
 o
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
 
ACT OF 1934.
 
For the transition period from ____________________ to ___________________.
 
Commission File Number 0-15482
 
ONCOLOGIX TECH, INC.
(Name of Small Business Issuer as Specified in Its Charter)
 
Nevada                                                                                                                                                                                                                                                  86-1006416
(State or other jurisdiction of                                                                                                                                                                                                                            (I.R.S. Employer
incorporation or organization)                                                                                                                                                                                                                           Identification No.)
 
P.O. Box 8832
Grand Rapids, MI  49518-8832
(Address of principal executive offices)
 
(616) 977-9933
(Issuer’s telephone number)
 
Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past twelve months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes      o   No     x
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company.  See the definitions of “large accelerated filer”, “accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated Filer      o                                                                                       Accelerated Filer                              o
 
Non-accelerated Filer        o                                                                                       Smaller Reporting Company           x
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes       o  No     x
 
As of April 21, 2010, there were 183,554,126 shares of common stock, par value $.001 per share, outstanding.
 
Transitional Small Business Disclosure Format (Check One):   Yes      o     No     x
 
 
 


 
EXPLANATORY NOTE

This amendment to the Current Report on Form 10-Q filed by Oncologix Tech, Inc. (the “Company”) with the Security and Exchange commission on May 21, 2010 is filed solely to correct one error: 1) The Company updated Item 4T Controls and Procedures to include information required by Items 307 and 308(c) of Regulation S-K


 
 
 
ONCOLOGIX TECH, INC. AND SUBSIDIARIES
 
 
TABLE OF CONTENTS
 
     
     
                            PART I. FINANCIAL INFORMATION
   
     
IMPORTANT INFORMATION
3
 
     
ITEM 1.    Financial Statements
   
     
Condensed Consolidated Balance Sheets as of February 28, 2010 (Unaudited) and August 31, 2009
4
 
     
Condensed Consolidated Statements of Operations (Unaudited) for the three and six month periods
   
     ended February 28, 2010 and 2009
5
 
     
Condensed Consolidated Statements of Stockholders' Deficit for the period from
   
     August 31, 2008 through February 28, 2010 (Unaudited)
6
 
     
Condensed Consolidated Statements of Cash Flows (Unaudited) for the six month period
   
     ended February 28, 2010 and 2009
7
 
     
Notes to Condensed Consolidated Financial Statements (Unaudited)
8
 
     
ITEM 2.    Management's Discussion and Analysis of Financial Condition and Results of Operations
24
 
     
ITEM 3.    Quantitative and Qualitative Disclosure about Market Risk
29
 
     
ITEM 4T. Controls and Procedures
30
 
     
PART II. OTHER INFORMATION
   
     
ITEM 1. Legal Proceedings
31
 
     
ITEM 1A. Risk Factors
31
 
     
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
31
 
     
ITEM 3. Defaults Upon Senior Securities
31
 
     
ITEM 4. Submission of Matters to a Vote of Security Holders
31
 
     
ITEM 5. Other Information
32
 
     
ITEM 6. Exhibits
32
 
     
 
2

 
 

 

               IMPORTANT NOTICE

This Report was required to be filed on April 14, 2010. We were unable to meet that requirement because we lacked funds to pay independent auditors to perform the necessary examination and reviews of our financial statements as required by law. We are now engaged in an effort to return to full compliance by the filing of this Report on Form 10-Q.
 
3

 
 

 

PART I: FINANCIAL INFORMATION
ITEM 1.  Financial Statements
ONCOLOGIX TECH, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
 


   
February 28,
   
August 31,
 
   
2010
   
2009
 
   
(Unaudited)
       
                                       ASSETS
           
Current Assets:
           
Cash and cash equivalents
  $ 672     $ 743  
Prepaid expenses and other current assets
    17,936       7,092  
Prepaid commissions
    -       2,691  
Current assets of discontinued operations
    -       -  
                 
Total current assets
    18,608       10,526  
                 
Property and equipment (net of accumulated depreciation
               
of $19,482 and $18,793)
    2,290       2,709  
Investment in IUTM
    3,186       3,186  
Marketing rights
    212       212  
Long-term assets of discontinued operations
    -       4,795  
                 
Total assets
  $ 24,296     $ 21,428  
                 
                                                       LIABILITIES AND STOCKHOLDERS' DEFICIT
               
Current liabilities:
               
Convertible notes payable (net of discount of $0 and $12,425)
  $ 25,000     $ 1,107,575  
Notes payable
    28,826       -  
Notes payable - related parties
    50,000       -  
Accounts payable and other accrued expenses
    141,354       263,736  
Accrued interest payable
    31,903       102,735  
Current liabilities of discontinued operations
    -       2,000  
                 
Total current liabilities
    277,083       1,476,046  
                 
Long-term liabilities:
               
Convertible notes payable
    127,712       127,712  
Convertible notes payable - related parties
    235,025       235,025  
                 
Total long-term liabilities
    362,737       362,737  
                 
Total liabilities
    639,820       1,838,783  
                 
Stockholders' Deficit:
               
Preferred stock, par value $.001 per share; 10,000,000 shares authorized
         
295,862 and 295,862 shares issued and outstanding at
               
February 28, 2010 and August 31, 2009, respectively
    296       296  
Common stock, par value $.001 per share; 200,000,000 shares authorized;
         
182,877,193 and 178,282,995 shares issued at February 28, 2010 and
         
August 31, 2009, respectively; 182,877,193 and 155,900,627 shares
         
outstanding at February 28, 2010 and August 31, 2009, respectively
    182,877       155,901  
Additional paid-in capital
    56,752,276       55,104,084  
Accumulated deficit
    (57,581,400 )     (57,074,502 )
Common stock subscribed, underlying common shares of 676,933 and 0
    33,847       -  
Noncontrolling interest
    (3,420 )     (3,134 )
                 
Total stockholders' deficit
    (615,524 )     (1,817,355 )
                 
Total liabilities and stockholders' deficit
  $ 24,296     $ 21,428  
                 
                 
 
             
 
 

See accompanying notes to condensed consolidated financial statements.
 
4

 
 

 

ONCOLOGIX TECH, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED FEBRUARY 28, 2010 AND 2009

 
 

   
Three Months Ended
   
For the Six Months Ended
 
   
February 28,
   
February 28,
   
February 28,
   
February 28,
 
   
2010
   
2009
   
2010
   
2009
 
                         
Revenue
  $ -     $ -     $ -     $ -  
                                 
Cost of Revenues
    -       -       -       -  
                                 
Gross margin
    -       -       -       -  
                                 
Operating expenses:
                               
General and administrative
  $ 45,495     $ 99,921       109,795       322,433  
Depreciation and amortization
    361       426       689       843  
                                 
Total operating expenses
    45,856       100,347       110,484       323,276  
                                 
Loss from operations
    (45,856 )     (100,347 )     (110,484 )     (323,276 )
                                 
Other income (expense):
                               
Interest income
    -       -       -       -  
Interest and finance charges
    (22,279 )     (128,792 )     (52,452 )     (387,932 )
Conversion expense
    (22,564 )     -       (413,841 )     (26,457 )
Loss on disposal of assets
    -       -       -       (382 )
Cancellation of debt
    -       -       73,000       -  
Other income (expense)
    (493 )     (1,129 )     (553 )     (4,594 )
                                 
Total other income (expense)
    (45,336 )     (129,921 )     (393,846 )     (419,365 )
                                 
Net loss from continuing operations
    (91,192 )     (230,268 )     (504,330 )     (742,641 )
                                 
Discontinued operations:
                               
Operating loss from discontinued operations
    (30 )     (11,111 )     (2,854 )     (24,586 )
Gain on disposal of discontinued operations
    -       22,116       -       22,116  
                                 
Loss from discontinued operations
    (30 )     11,005       (2,854 )     (2,470 )
                                 
Less loss attributable to noncontrolling interest
    (3 )     -       (286 )     -  
                                 
Net loss from discontinued operations
    (27 )     11,005       (2,568 )     (2,470 )
                                 
                                 
Net loss before income taxes
    (91,219 )     (219,263 )     (506,898 )     (745,111 )
                                 
Income taxes
    -       -       -       -  
                                 
Net loss
  $ (91,219 )   $ (219,263 )   $ (506,898 )   $ (745,111 )
                                 
Loss per common share, basic and diluted:
                               
Continuing operations
  $ (0.00 )   $ (0.00 )   $ (0.00 )   $ (0.01 )
Discontinued operations
    (0.00 )     (0.00 )     (0.00 )     (0.00 )
                                 
    $ (0.00 )   $ (0.00 )   $ (0.00 )   $ (0.01 )
Weighted average number of shares
                               
outstanding - basic and diluted
    182,252,408       121,313,664       179,209,611       119,109,641  
                                 


See accompanying notes to condensed consolidated financial statements.
 
5

 
 

 

ONCOLOGIX TECH, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT
FOR THE PERIOD AUGUST 31, 2008 THROUGH FEBRUARY 28, 2010
 
 
 

                                                       
                           
Additional
         
Common
   
Non-
       
   
Preferred Stock
   
 Common Stock
 
Paid-in
   
Accumulated
   
Stock
   
Controlling
       
   
Shares
   
Amount
   
Shares
   
Amount
   
Capital
   
Deficit
   
Subscribed
   
Interest
   
Total
 
                                                       
Balance, August 31, 2008
    295,862     $ 296       113,734,946     $ 113,735     $ 51,889,552     $ (54,499,370 )   $ -     $ -     $ (2,495,787 )
                                                                         
Stock based compensation
    -       -       -       -       1,030       -       -       -       1,030  
Issuance of stock for services
    -       -       150,000       150       1,350       -       -       -       1,500  
Issuance of stock for interest
    -       -       793,720       794       38,892       -       -       -       39,686  
Issuance of stock purchased for cash
    -       -       10,300,000       10,300       127,700       -       -       -       138,000  
Induced conversion expense - interest
                                                                       
paid with stock
    -       -       -       -       26,457       -       -       -       26,457  
Induced conversion expense - conversion
                                                                       
notes payable
    -       -       -       -       1,503,927       -       -       -       1,503,927  
Conversion of notes payable
    -       -       29,505,289       29,506       1,445,758       -       -       -       1,475,264  
Conversion of notes payable - related parties
    -       -       1,416,672       1,416       69,418       -       -       -       70,834  
Sale of noncontrolling interest
    -       -       -       -       -       -       -       212       212  
Net loss
    -       -       -       -       -       (2,575,132 )     -       (3,346 )     (2,578,478 )
                                                                         
Balance, August 31, 2009
    295,862     $ 296       155,900,627     $ 155,901     $ 55,104,084     $ (57,074,502 )   $ -     $ (3,134 )   $ (1,817,355 )
                                                                         
Issuance of stock purchased for cash
    -       -       3,500,000       3,500       71,500       -       -       -       75,000  
Issuance of subscribed stock
    -       -       670,719       671       32,865       -       (33,536 )     -       -  
Induced conversion expense - conversion
                                                                       
notes payable
    -       -       -       -       413,840       -       -       -       413,840  
Conversion of notes payable
    -       -       22,805,847       22,805       1,117,487       -       67,383       -       1,207,675  
Beneficial conversion feature notes payable
    -       -       -       -       12,500       -       -       -       12,500  
Net loss
    -       -       -       -       -       (506,898 )     -       (286 )     (507,184 )
                                                                         
Balance, February 28, 2010 (Unaudited)
    295,862     $ 296       182,877,193     $ 182,877     $ 56,752,276     $ (57,581,400 )   $ 33,847     $ (3,420 )   $ (615,524 )
                                                                         


 
See accompanying notes to condensed consolidated financial statements.
 
6

 
 

 

ONCOLOGIX TECH, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED FEBRUARY 28, 2010 AND 2009
 
 

   
For the Six Months Ended
 
   
February 28,
   
February 28,
 
   
2010
   
2009
 
Operating activities:
           
        Net Loss    $               (506,898  )    $               (745,111 )
Net loss from discontinued operations
    2,568       2,470  
                 
Net loss from continuing operations
    (504,330 )     (742,641 )
                 
Adjustments to reconcile net loss to net cash used
               
  in operating activities:
               
Depreciation and amortization
    689       843  
Loss on disposal of property and equipment
    -       382  
Stock based compensation expense
    -       3,410  
Amortization of discount on notes payable and warrants
    12,425       257,298  
Induced conversion expense notes payable
    413,840       26,457  
Issuance of stock and warrants for services
    -       81,500  
Beneficial conversion feature - notes payable
    12,500       -  
Beneficial conversion feature - stock issued for interest
    -       39,686  
                 
Changes in operating assets and liabilities:
               
Prepaid expenses and other current assets
    8,356       8,480  
Prepaid commissions
    2,691       43,694  
Deposits and other assets
    -       2,691  
Accounts payable and other accrued expenses
    (95,382 )     183,230  
Accrued interest payable
    16,843       42,537  
                 
Net operating cash flows - continuing operations
    (132,368 )     (52,433 )
                 
Net operating cash flows - discontinued operations
    (185 )     (246 )
                 
Net cash used in operating activities
    (132,553 )     (52,679 )
                 
Investing activities:
               
Purchase of property and equipment
    (294 )     -  
Investment in joint venture
    -       (3,186 )
                 
Net investing cash flows - continuing operations
    (294 )     (3,186 )
                 
Net investing cash flows - discontinued operations
    150       6,990  
                 
Net cash used in investing activities
    (144 )     3,804  
                 
Financing activities:
               
 Proceeds from issuance of convertible notes payable
    25,000       -  
 Proceeds from issuance of notes payable - related parties
    50,000       -  
 Proceeds from the issuance of common stock
    75,000       48,000  
 Repayment of notes payable     (17,374   )     (8,785   )
                 
Net cash provided by financing activities - continuing operations
    132,626       39,215  
                 
Net increase (decrease) in cash and cash equivalents
    (71 )     (9,660 )
                 
Cash and cash equivalents, beginning of period
    743       9,912  
                 
Cash and cash equivalents, end of period
  $ 672     $ 252  
                 


See accompanying notes to condensed consolidated financial statements.
 
7
 
 
 
 

 

ONCOLOGIX TECH, INC. AND SUBSIDIARIES

 
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 — DESCRIPTION OF THE COMPANY

We were originally formed in 1995 as "Wavetech, Inc." a New Jersey corporation and changed our corporate domicile to Nevada in December 1997, by merging into a Nevada corporation named, "Interpretel International, Inc." We subsequently changed our name, first to "Wavetech International, Inc." and then, in 2000, to "BestNet Communications Corp." Our business at the time was to provide worldwide long distance telephone communication and teleconferencing services to commercial and residential consumers through the internet. That business was never profitable and we were able to continue it only by repeated equity and debt financings. Accordingly, during December 2006, we determined to dispose of that business and sold it during February 2007.

We entered the medical device business at the end of July 2006 through the acquisition of JDA Medical Technologies, Inc. ("JDA"), a development stage company, which was merged into our wholly owned subsidiary, Oncologix Corporation. On January 22, 2007, we changed our name to Oncologix Tech, Inc., to reflect this new business. During June 2007, we moved our principal offices from Grand Rapids, Michigan, to our offices at 3725 Lawrenceville-Suwanee Road, Suite B-4, Suwanee, Georgia, 30024, telephone (770) 831-8818.  At that address, our business was the development of a medical device for brachytherapy (radiation therapy), called the “Oncosphere” (or “Oncosphere System”), for the advanced medical treatment of soft tissue cancers. It is a radioactive micro-particle designed to deliver therapeutic radiation directly to a tumor site by introducing the micro-particles into the artery that feeds the tumor tissue. Its first application is expected to be the treatment of liver cancer. Due to a lack of funding, we suspended these activities on December 31, 2007, whereupon we closed the offices in Suwanee Georgia.

Our new mailing address is P.O. Box 8832, Grand Rapids, MI  49518-8832, telephone (616) 977-9933.

During May 2008, we determined to dispose of most of the assets of the Oncosphere project.  This information is being presented as discontinued operations for all periods shown.

In February 2009, we entered into a Technology Agreement with Institut für Umwelttechnologien GmbH, a German Company (“IUT”) whereunder the parties have agreed that:

(a)  
The Company has granted an exclusive license to a new IUT subsidiary, called “IUTM”, to develop and manufacture products based on the Company’s proprietary information. This proprietary information is not based on the technology that had been subject to the Master License Agreement with the University of Maryland – Baltimore. The Company has also transferred to IUTM a number of items of laboratory equipment and inventory useful in connection with the licensed information.
(b)  
The Company retains rights to market products based on such information as well as first consideration for marketing rights for other possible IUTM products.
(c)  
In consideration of the license, the Company has received a 10% equity interest in IUTM, which is organized as a private German limited liability company and IUT has assumed approximately $82,000 of the Company’s indebtedness.
(d)  
The Company’s marketing rights have been transferred to its subsidiary, Oncologix Corporation and the Company has issued IUTM 10% of the equity ownership of that subsidiary.

In addition, on April 7, 2009, the Company entered into a Termination Agreement with the University of Maryland – Baltimore, The Master License Agreement between the Company and the University has been formally terminated and each party has released the other from all liabilities arising under the Master License Agreement.

We have been advised that IUTM is continuing the development of a brachytherapy device generally as described above but based on proprietary technology not developed by the University of Maryland. We have begun discussions with IUTM to determine our future business and financial relationships and plans, including the possibility of developing and commercializing other radiation-based medical products.  Our plan is then to seek financing for the implementation of those plans. While our Management is optimistic as to the outcome of those discussions and future success in financing, it is not possible to predict the probabilities of success with any degree of certainty.
 
8
 
 
 
 

 

By letter dated August 12, 2009, the Securities and Exchange Commission (“SEC”) notified us that unless we become current with our required public filings by August 27, 2009, the SEC may cause the Company to be de-registered under the securities laws and that the SEC may issue an order suspending public trading of the Company’s securities.  As a result of preliminary conversations with the staff of the SEC, the Company believes that additional time may be granted that will be sufficient for the Company to be compliant with its filings.  However, there is no assurance of that outcome.  Such de-registration and suspension of trading will seriously limit the ability of investors to re-sell any of our shares held by them.  In June, 2009, we began an effort to achieve compliance with all reporting requirements and our independent auditors began the process of examining our financial statements with a view to certifying them as required by law.


NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPALS OF CONSOLIDATION

The unaudited condensed consolidated financial statements include the accounts of its 90% owned subsidiary Oncologix Corporation, and its wholly owned subsidiaries Interpretel Inc, Telplex International and International Environment Corporation.  All inter-company accounts and transactions have been eliminated in consolidation.

BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and, pursuant to rules and regulations of the Securities and Exchange Commission, do not include all information and footnote disclosures normally included in audited financial statements.  However, in the opinion of management, all adjustments necessary to present fairly the results of operations, financial position and cash flows have been made.  For further information, these statements should be read in conjunction with the financial statements included in the Company’s Annual Report on Form 10-K for the year ended August 31, 2009.

USE OF ESTIMATES

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period.  Actual results could differ from those estimates.

INCOME TAXES

The Financial Accounting Standards Board (FASB) has issued FASB ASC 740-10 (Prior authoritative literature: Financial Interpretation No. 48, "Accounting for Uncertainty in Income Taxes - An Interpretation of FASB Statement No. 109 (FIN 48)).  FASB ASC 740-10 clarifies the accounting for uncertainty in income taxes recognized in an enterprise's financial statements in accordance with prior literature FASB Statement No. 109, Accounting for Income Taxes.  This standard requires a company to determine whether it is more likely than not that a tax position will be sustained will be sustained upon examination based upon the technical merits of the position.  If the more-likely-than- not threshold is met, a company must measure the tax position to determine the amount to recognize in the financial statements.  As a result of the implementation of this standard, the Company performed a review of its material tax positions in accordance with recognition and measurement standards established by FASB ASC 740-10.

The Company has adopted FASB ASC 740-10 to account for income taxes. The Company currently has no issues creating timing differences that would mandate deferred tax expense. Net operating losses would create possible tax assets in future years. Due to the uncertainty of the utilization of net operating loss carry forwards, an evaluation allowance has been made to the extent of any tax benefit that net operating losses may generate.  A provision for income taxes has not been made due to net operating loss carry-forwards in excess of $30,000,000 as of February 28, 2010 and 2009 which may be offset against future taxable income through 2029. No tax benefit has been reported in the financial statements.
 
9
 
 
 
 

 



NONCONTROLLING INTEREST

In December 2007, the FASB issued FASB ASC 810, Consolidation, Non-Controlling Interests (“ASC 810”) (formerly referenced as SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements-an amendment of Accounting Research Bulletin No. 51). ASC 810 addresses the accounting and reporting standards for ownership interests in subsidiaries held by parties other than the parent, the amount of consolidated net income attributable to the parent and to the noncontrolling interest, changes in a parent’s ownership interest, and the valuation of retained noncontrolling equity investments when a subsidiary is deconsolidated. ASC 810 also establishes disclosure requirements that clearly identify and distinguish between the interests of the parent and the interests of the noncontrolling owners. ASC 810 is effective for fiscal years beginning after December 15, 2008. During fiscal 2009, the Company issued a ten percent interest in its subsidiary, Oncologix Corporation, to IUTM as required in a technology agreement.  The Company valued this interest at $212.  Through February 28, 2010, the Company has allocated $3,632 losses to its noncontrolling interest.  The Company has adopted ASC 810 to account for this noncontrolling interest.

FAIR VALUE OF FINANCIAL INSTRUMENTS

On January 1, 2008, the Company adopted FASB ASC 820-10-50, “Fair Value Measurements. This guidance defines fair value, establishes a three-level valuation hierarchy for disclosures of fair value measurement and enhances disclosure requirements for fair value measures. The three levels are defined as follows:

·  
Level 1 inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.
·  
Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
·  
Level 3 inputs to valuation methodology are unobservable and significant to the fair measurement.

The carrying amounts reported in the balance sheets for the cash and cash equivalents, receivables and current liabilities each qualify as financial instruments and are a reasonable estimate of fair value because of the short period of time between the origination of such instruments and their expected realization and their current market rate of interest. The carrying value of notes payable approximates fair value because negotiated terms and conditions are consistent with current market rates as of February 28, 2010 and August 31, 2009.

CONVERTIBLE DEBT

Interest on convertible debt is calculated using the simple interest method.  The company recognizes a beneficial conversion feature to the extent the conversion price is less than the closing stock price on the issuance of the convertible notes.  The Company has adopted ASC 470-20-35 regarding changes in the terms of the convertible notes also follows ASC 470-50 regarding changes in the terms of the convertible notes.  The Company has adopted ASC 470-20-40 regarding induced conversion of its convertible debt.

STOCK BASED COMPENSATION

Effective September 1, 2006, we adopted the fair value recognition provisions of ASC 718 Compensation – Stock Based Compensation (formerly SFAS 123(R)), using the modified prospective transition method.  Under that transition method, employee compensation cost recognized for fiscal 2007 includes: (i) compensation cost for all share-based payments granted prior to, but net yet vested as of September 1, 2006, based on the grant date fair value estimated in accordance with the original provisions of ASC 718 and (ii) compensation cost for all share-based payments granted subsequent to September 1, 2006, based on the grant date fair value estimated in accordance with the provisions of ASC 718.  Results for prior periods have not been restated.  Stock-based compensation expense is recognized as a component of general and administrative expense in the Statement of Operations.

The Company accounts for stock-based compensation to its employees and directors and measures of the amount of compensation expense for all stock-based awards at fair value on the date of grant and recognition of compensation expense over the service period for awards expected to vest.  Restricted stock awards issued to employees and directors are measured based on the fair market values of the underlying stock on the dates of grant.
 
10
 
 
 
 

 

NET LOSS PER COMMON SHARE

Based on ASC 260 (formerly SFAS128 “Earnings Per Share”), basic earnings (loss) per share is calculated by dividing income (loss) available to common shareholders by the weighted average number of common shares outstanding for the period.  Diluted earnings (loss) per share is calculated based on the weighted average number of common shares outstanding during the period plus the dilutive effect of common stock purchase warrants and stock options using the treasury stock method and the dilutive effects of convertible notes payable and convertible preferred stock using the if-converted method.

Basic and diluted earnings per share for the three and six months ended February 28, 2010 and 2009 are as follows:
 
 
 

 
 

   
For the Three Months Ended
   
For the Six Months Ended
 
   
February 28,
   
February 28,
   
February 28,
   
February 28,
 
   
2010
   
2009
   
2010
   
2009
 
                         
Net loss attributable to common shareholders
                       
Continuing operations
  $ (91,192 )   $ (230,268 )   $ (504,330 )   $ (742,641 )
Discontinued operations
    (27 )     11,005       (2,568 )     (2,470 )
                                 
    $ (91,219 )   $ (219,263 )   $ (506,898 )   $ (745,111 )
                                 
Weighted average shares outstanding
    182,252,408       121,313,664       179,209,611       119,109,641  
                                 
Loss per common share, basic and diluted:
                               
Continuing operations
  $ (0.00 )   $ -     $ (0.00 )   $ (0.01 )
Discontinued operations
    (0.00 )     0.00     $ (0.00 )   $ (0.00 )
                                 
    $ (0.00 )   $ 0.00     $ (0.00 )   $ (0.01 )
                                 


Due to the net losses in fiscal 2010 and fiscal 2009, basic and diluted loss per share was the same, as the effect of potentially dilutive securities would have been anti-dilutive. Shares attributable to convertible notes not included the diluted loss per share calculation for the six months ended February 28, 2010 and 2009 were 2,693,140 and 9,726,895, respectively.
 
11

 
 
 

 

NOTE 3 – DISCONTINUED OPERATIONS

We entered the medical device business at the end of July 2006 through the acquisition of JDA Medical Technologies, Inc. ("JDA"), a development stage company, which was merged into our wholly owned subsidiary, Oncologix Corporation. On January 22, 2007, we changed our name to Oncologix Tech, Inc., to reflect this new business. During June 2007, we moved our principal offices from Grand Rapids, Michigan, to our offices at 3725 Lawrenceville-Suwanee Road, Suite B-4, Suwanee, Georgia, 30024, telephone (770) 831-8818.  At that address, our business was the development of a medical device for brachytherapy (radiation therapy), called the “Oncosphere” (or “Oncosphere System”), for the advanced medical treatment of soft tissue cancers. It is a radioactive micro-particle designed to deliver therapeutic radiation directly to a tumor site by introducing the micro-particles into the artery that feeds the tumor tissue. Its first application is expected to be the treatment of liver cancer. Due to a lack of funding, we had to suspend these activities on December 31, 2007, whereupon we closed the offices in Suwanee Georgia.

Net assets related to discontinued operations of our Oncosphere assets are as follows:
 
 
   
February 28,
   
August 31,
 
   
2010
   
2009
 
Current assets of discontinued operations:
           
Prepaid expenses and other current assets
  $ -     $ -  
                 
Total current assets of discontinued operations
    -       -  
                 
Long-term assets of discontinued operations:
               
Property and equipment
    -       4,795  
Investment in joint venture………………………………………………………………………………..
    -       -  
                 
Total long-term assets of discontinued operations
    -       4,795  
                 
Total assets of discontinued operations
  $ -     $ 4,795  
                 
Current liabilities of discontinued operations:
               
Accounts payable and other accrued expenses
  $ -     $ 2,000  
                 
Total liabilities of discontinued operations
  $ -     $ 2,000  
                 
Net assets of discontinued operations
  $ -     $ 2,795  
                 


12
 

 
 
 

 

The expenses shown below are part of the discontinued operations of our Oncosphere business.
 
 

   
For the Three Months Ended
   
For the Six Months Ended
 
   
February 28,
   
February 28,
   
February 28,
   
February 28,
 
   
2010
   
2009
   
2010
   
2009
 
Operating expenses:
                       
General and administrative
  $ 30     $ 1,404     $ 185     $ 1,404  
Depreciation and amortization
    -       9,081       2,669       18,689  
                                 
Total operating expenses
    30       10,485       2,854       20,093  
                                 
Loss from operations
    (30 )     (10,485 )     (2,854 )     (20,093 )
                                 
Other income (expense):
                               
Loss on disposal of assets
    -       (626 )     -       (4,463 )
Other income (expense)
    -       -       -       (30 )
                                 
Total other income (expense)
    -       (626 )     -       (4,493 )
                                 
Loss from discontinued operations
    (30 )     (11,111 )     (2,854 )     (24,586 )
Gain on disposal of discontinued operations
    -       22,116       -       22,116  
Gain on disposal of discontinued operations………………………………..
    -       -       -       22,116  
                                 
Loss from discontinued operations
    (30 )     11,005       (2,854 )     19,646  
                                 
Less loss attributable to noncontrolling interest
    (3 )     -       (286 )     -  
                                 
Net loss from discontinued operations
  $ (27 )   $ 11,005     $ (2,568 )   $ 19,646  
                                 

 
NOTE 4 — STOCKHOLDERS EQUITY
 
PREFERRED STOCK:

The Company is authorized to issue up to 10,000,000 shares of preferred stock, par value $0.001, 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.  As of the date of this report, the Company has 295,862 Preferred Series A shares outstanding.  These shareholders do not have any voting rights in the Company.  Each Series A Preferred share is convertible into two shares of common stock at a price of $0.10 per common share.

UNITS:

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 two shares of the Company’s common stock in exchange for $0.10 per common share ($.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.  Our Board of Directors authorized the separation of the Units into their component parts twice, once in July 2004 and again in February 2005.  Our Board of Directors again authorized the separation of the Units again in April 2008.  On April 11, 2008 holders of 100,300 Units contributed $20,060 to convert 100,300 shares of preferred stock into 200,600 shares of common stock.  On June 27, 2008, holders of 47,000 Units contributed $9,400 to convert 47,000 shares of preferred stock into 94,000 shares of common stock. As of February 28, 2010 and August 31, 2009, there were 295,862 and 295,862 Units outstanding that had not been separated, respectively.  These units are presented as their underlying securities on our balance sheet and consist of 295,862 shares of Series A Preferred Stock and 887,586 shares of common stock which is included in the issued and outstanding shares.
 
13


 
 

 


SUBSCRIBED COMMON STOCK:

As of February 28, 2010, we have 676,933 shares of subscribed stock that are issuable for the conversion of $33,847 in principal and accrued interest in convertible notes at a conversion price of $0.05 per share.  There were 0 shares issuable as of August 31, 2009.

 
For the period Ended February 28, 2010
           
   
Shares
   
Amount
 
Shares issuable upon conversion of convertible notes payable
    676,933     $ 33,847  
                 
Total subscribed stock
    676,933     $ 33,847  
                 
For the year Ended August 31, 2009
               
   
Shares
   
Amount
 
Shares issuable upon conversion of convertible notes payable
    -     $ -  
                 
Total subscribed stock
    -     $ -  
                 

 
 

 



COMMON STOCK:

Under the terms of our acquisition of JDA, we issued 43,000,000 shares of our common stock to the previous owners of JDA.  Of these shares, 29,843,160 were placed into escrow pending the achievement of certain development and operating goals.  These escrowed shares were not included in the calculation of the purchase price of JDA and will be included in that calculation if and to the extent that the applicable contingencies are resolved and the shares are released from escrow.  The development and operating goals that relate to the release of these shares, and the number of shares to be released at the time the goal is achieved are as follows:  (i) 7,460,790 shares upon the completion of the “Development Phase”, as defined in the Merger Agreement between the Company and JDA (already released); (ii) 9,325,986 shares upon the completion of the “Pre-Clinical Testing Phase as defined in the merger agreement; and (iii) 13,056,382 shares upon the completion of the Clinical Approval Phase.   On September 10, 2009, the remaining 22,382,368 shares in escrow were released back to the Company and subsequently retired.  Below is a listing of recent stock sales:

Date of Sale
Proceeds from Sale
Further Description and Remarks
October 13, 2008
$15,000
On October 13, 2008, the Company sold 1,500,000 shares of common stock to an accredited investor at $0.01 per share.
October 13, 2008
$15,000
On October 13, 2008, the Company sold 1,500,000 shares of common stock to its CEO, Anthony Silverman at a price of $0.01 per share.
December 1, 2008
$15,000
On December 1, 2008, the Company sold 1,500,000 shares of common stock to an accredited investor at $0.01 per share.
January 13, 2009
$3,000
On January 13, 2009, the Company sold 300,000 shares of common stock to an accredited investor at $0.01 per share.
March 17, 2009
$15,000
On March 17, 2009, the Company sold 1,000,000 shares of common stock to an accredited investor at $0.015 per share.
May 13, 2009
$30,000
On May 13, 2009, the Company sold 2,000,000 shares of common stock to three accredited investors at $0.015 per share.
May 22, 2009
$15,000
On May 22, 2009, the Company sold 1,000,000 shares of common stock to an accredited investor at $0.015 per share.
June 13, 2009
$30,000
On June 13, 2009, the Company sold 1,500,000 shares of common stock to an accredited investor at $0.02 per share.
September 30, 2009
$25,000
On September 30, 2009, the Company sold 1,250,000 shares of common stock to an accredited investor at $0.02 per share.
November 3, 2009
$25,000
On November 3, 2009, the Company sold 1,250,000 shares of common stock to an accredited investor at $0.02 per share.
February 1, 2010
$25,000
On February 1, 2010, the Company sold 1,000,000 shares of common stock to an accredited investor at $0.025 per share.
 
 
14

 
 
 

 

WARRANTS:
 
Details relative to the 0 and 3,690,832 outstanding warrants at February 28, 2010 and August 31, 2009, respectively are as follows:
 
 
         
Weighted
         
         
Average
         
Date of
 
Number
   
Exercise
   
Remaining
 
Expiration
Grant
 
of Shares
   
Price
   
Exercise Life
 
Date
First quarter of fiscal 2002
    25,000     $ 2.90       -  
October 17, 2007
Second quarter of fiscal 2002
    5,751       1.19       -  
January 30, 2008
Third quarter of fiscal 2002
    1,100,000       0.50       -  
April 23, 2007
Second quarter of fiscal 2004
    100,000       0.32       -  
January 8, 2007
Third quarter of fiscal 2004
    40,000       0.27       -  
May 31, 2009
Fourth quarter of fiscal 2004
    10,000       0.29       -  
June 4, 2009
Third quarter of fiscal 2006
    200,000       0.35       -  
March 13, 2008
                           
Outstanding, August 31, 2006
    1,480,751                    
                           
Second quarter of fiscal 2007
    (100,000 )     0.32       -  
January 8, 2007
Second quarter of fiscal 2007
    2,158,327       0.50       -  
December 4, 2008
Third quarter of fiscal 2007
    (1,100,000 )     0.50       -  
April 23, 2007
                           
Outstanding, August 31, 2007
    2,439,078                    
                           
First quarter of fiscal 2008
    (25,000 )     2.90       -  
October 17, 2007
First quarter of fiscal 2008
    3,633,332       0.50       -  
September 17, 2009
Second quarter of fiscal 2008
    (5,751 )     1.19       -  
January 30, 2008
Second quarter of fiscal 2008
    57,500       0.40       -  
December 3, 2009
Third quarter of fiscal 2008
    (200,000 )     0.35       -  
March 13, 2008
                           
Outstanding, August 31, 2008
    5,899,159                    
                           
Second quarter of fiscal 2009
    (2,158,327 )     0.50       -  
December 4, 2008
Third quarter of fiscal 2009
    (40,000 )     0.27       -  
May 31, 2009
Fourth quarter of fiscal 2009
    (10,000 )     0.29       -  
June 4, 2009
                           
Outstanding, August 31, 2009
    3,690,832                    
                           
First quarter of fiscal 2010
    (3,633,332 )     0.50       -  
September 17, 2009
Second quarter of fiscal 2010
    (57,500 )     0.40       -  
December 3, 2009
                           
Outstanding, February 28, 2010
    -       -       -    
                           


Additional information relative to our warrants outstanding at February 28, 2010 is summarized as follows:
           
Weighted Avg.
   
     
Number
   
Exercise Price
   
 
Outstanding, August 31, 2008
    5,899,159     $ 0.50    
 
Expired/Retired
    (2,208,327 )   $ 0.49    
 
Exercised
    -     $ -    
 
Issued
    -     $ -    
 
Outstanding, August 31, 2009
    3,690,832     $ 0.50    
                     
 
Expired/Retired
    (3,690,832 )   $ 0.50    
 
Exercised
    -     $ -    
 
Issued
    -     $ -    
 
Outstanding, February 28, 2010
    -     $ -    
                     
 
 
15

 
 

 

STOCK OPTIONS:

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.

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.

During the three month period ended February 28, 2010 and 2009 zero employee options were exercised, respectively, zero options were forfeited, and 20,000 and 8,333 options expired, respectively.  During the six month period ended February 28, 2010 and 2009 zero employee options were exercised, respectively, zero options were forfeited, and 25,000 and 33,333 options expired, respectively.  As of February 28, 2010, $0 of total unrecognized compensation cost related to employee stock options is expected to be recognized.  Additional information relative to our employee options outstanding at February 28, 2010 is summarized as follows:

 
               
Weighted Average
 
   
Number of
   
Option Price
   
Exercise Price
 
   
Options Granted
   
Per Share
   
Per Share
 
                   
Outstanding, August 31, 2008
    4,402,526     $ 0.17 - $7.38     $ 0.64  
Granted
    -       -       -  
Exercised
    -       -       -  
Cancelled
    (1,388,334 )   $ 0.24 - $3.00       0.99  
Outstanding, August 31, 2009
    3,014,192     $ 0.17 - $7.38     $ 0.55  
Granted
    -       -       -  
Exercised
    -       -       -  
Cancelled
    (25,000 )   $ 2.94 - $7.38       6.49  
Outstanding, February 28, 2010
    2,989,192     $ 0.17 - $7.38     $ 0.50  
                         

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 2010 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 February 28, 2010.


   
Options
   
Options
 
   
Outstanding
   
Exercisable
 
Number of options
    2,989,192       2,989,192  
Aggregate intrinsic value of options
  $ -     $ -  
Weighted average remaining contractual term (years)
    2.69       2.69  
Weighted average exercise price
  $ 0.50     $ 0.50  
                 


16
 
 
 
 

 

NOTE 5 — NOTES PAYABLE

CONVERTIBLE NOTES PAYABLE:

Convertible notes payable consist of the following as of February 28, 2010 and August 31, 2009:


   
February 28,
   
August 31,
 
   
2010
   
2009
 
             
12.0% convertible note due March 31, 2012
  $ 2,712     $ 2,712  
                 
8.0% convertible notes due March 31, 2012
    125,000       125,000  
                 
6% convertible note due May 28, 2010
    25,000       0  
                 
6.0% convertible note due January 22, 2010, net of a discount of
               
$0 and $0 as of February 28, 2010 and August 31, 2009 (1)
    -       30,000  
                 
6.0% convertible notes due September 17, 2009, net of a discount of
               
$0 and $12,425 as of February 28, 2010 and August 31, 2009 (2)
    -       1,077,575  
                 
Total unsecured convertible notes payable
    152,712       1,235,287  
Less:  Current portion
    (25,000 )     (1,107,575 )
                 
Long-term portion
  $ 127,712     $ 127,712  
                 
(1) This note was converted into common stock in February 2010.
               
(2) These notes were converted into common stock in September 2009.
               
                 

During December 2006, we issued seven Convertible Promissory Notes in an aggregate principal amount of $480,000.  These Convertible Promissory Notes are due December 4, 2008, bear interest at the rate of 6% per annum and are convertible into our common stock at a rate of $0.30.  The Convertible Promissory Notes were issued in a private offering of Units, each consisting of a Convertible Promissory Note and a warrant for the purchase of one half the number of common shares into which each Convertible Promissory Note is convertible.  The warrants expire on December 4, 2008 and have an exercise price of $0.50 per share.  We recognized a discount of $58,708 related to the warrants and a beneficial conversion feature of $269,541 related to these notes.  During fiscal 2009, $43,073 was expensed as interest and finance charges as a result of amortizing the discount and beneficial conversion feature.  In July 2009, $480,000 of principal plus $46,475 in accrued interest was converted into 10,529,493 shares of common stock at an exercise price of $0.05 per share.  The Company recognized $522,924 in conversion expense in fiscal 2009 as a result of the reduction of the conversion price from $0.30 to $0.05 to induce the conversion.

During January 2007, we issued fourteen additional Convertible Promissory Notes in an aggregate principal amount of $485,000 as a continuation of the private offering of Units that commenced in December, 2006.  We recognized a discount of $55,446 related to the warrants and a beneficial conversion feature of $300,197 related to these notes.  During fiscal 2009, $49,317 was expensed as interest and finance charges as a result of amortizing the discount and beneficial conversion feature.  In July 2009, $455,000 of principal plus $44,054 in accrued interest was converted into 9,981,091 shares of common stock at an exercise price of $0.05 per share.  The Company recognized $495,689 in conversion expense in fiscal 2009 as a result of the reduction of the conversion price from $0.30 to $0.05 to induce the conversion.  The remaining Convertible Promissory Note in the principal amount of $30,000 was extended to January 22, 2010.  The remaining principal amount of $30,000 plus accrued interest of $3,847 was converted into 670,719 shares of common stock at a exercise price of $0.05 per share during February 2010. The Company recognized $22,564 in conversion expense as a result of the reduction of the conversion price from $0.30 to $0.05 to induce the conversion.

During February 2007, we issued eight additional Convertible Promissory Notes in an aggregate principal amount of $330,000 as a continuation of the private offering of Units described above.  We recognized a discount of $35,487 related to the warrants and a beneficial conversion feature of $192,820 related to these notes.  During fiscal 2009, $32,611 was expensed as interest and finance charges as a result of amortizing the discount and beneficial conversion feature.  In July 2009, $330,000 of principal plus $31,951 in accrued interest was converted into 7,239,032 shares of common stock at an exercise price of $0.05 per share.  The Company recognized $359,510 in conversion expense in fiscal 2009 as a result of the reduction of the conversion price from $0.30 to $0.05 to induce the conversion.
 
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During May and June 2007, we issued nine Convertible Promissory Notes in an aggregate principal amount of $700,000.  These Convertible Promissory Notes are due May 7, 2008, bear interest at the rate of 8% per annum and are convertible into our common stock at a rate of $0.25.  We recognized a beneficial conversion feature of $501,000 related to these notes.  During fiscal 2008, $349,857 was expensed as interest and finance charges as a result of amortizing the beneficial conversion feature.  During May 2008, the investors entered into agreements whereunder the dates on which payment is due is extended until December 4, 2008, the price at which amounts due under the notes may be converted to shares of common stock was reduced to $0.15 per share; provided that any conversion effected on or before June 16, 2008 would be at a price of $0.05 per share.  On May 30, 2008, holders of two $25,000 notes elected to convert $54,126 in principal and accrued interest into 1,082,522 shares of common stock at an exercise price of $0.05 per share.  During June 2008, the three investors holding $450,000 in notes elected to convert $499,479 in principal and accrued interest into 9,989,589 shares of common stock at an exercise price of $0.05 per share. The Company recognized $434,201 in conversion expense as a result of the reduction of the conversion price to induce conversion.  Four investors holding the remaining $200,000 in principal notes have extended until December 4, 2008.  In June and July 2009, $75,000 of principal plus $12,784 in accrued interest was converted into 1,755,673 shares of common stock at an exercise price of $0.05 per share.  The Company recognized $69,767 in conversion expense in fiscal 2009 as a result of the reduction of the conversion price to induce the conversion.  The remaining Convertible Promissory Note, in the principal amount of $125,000, was extended on January 28, 2010 to March 31, 2012.

On September 7, 2007, the Company issued to Stanley Schloz, a former member of the Company’s Board of Directors, a convertible promissory note for bridge financing in the principal amount of $150,000.  This note bears interest at a rate of 12% and is payable monthly.  The principal is due in full on December 15, 2007.  On November 30, 2007, the Company repaid $100,000 of the principal.  In connection with this repayment, Mr. Schloz agreed to extend the remaining principal until January 14, 2008.  The note is convertible into the Company’s common stock at a conversion price of $0.20 per common share.  During May 2008, Mr. Schloz entered into an agreement whereunder the date on which payment is due is extended until December 4, 2008, the price at which amounts due under the notes may be converted to shares of common stock was reduced to $0.15 per share; provided that any conversion effected on or before June 16, 2008 would be at a price of $0.05 per share.  On June 9, 2008, the investor elected to convert $50,000 in principal into 1,000,000 shares of common stock at an exercise price of $0.05 per share.  The Company recognized $33,333 in conversion expense as a result of the reduction of the conversion price to induce the conversion.  Mr. Schloz elected to extend $2,712 in accrued interest until March 31, 2012 which is convertible at $0.15 per share.

During September through November 2007, we issued thirty-four Convertible Promissory Notes in an aggregate principal amount of $1,090,000.  These Convertible Promissory Notes are due September 17, 2009, bear interest at the rate of 6% per annum and are convertible into our common stock at a rate of $0.30.  The Convertible Promissory Notes were issued in a private offering of Units, each consisting of a Convertible Promissory Note and a warrant for the purchase of the number of common shares into which each Convertible Promissory Note is convertible.  The warrants expire on September 17, 2009 and have an exercise price of $0.50 per share.  We recognized a discount of $180,330 related to the warrants and a beneficial conversion feature of $318,330 related to these notes.  During the first quarter of fiscal 2010, $12,425 was expensed as interest and finance charges as a result of amortizing the discount and beneficial conversion feature.  During the fiscal 2009, $266,786 was expensed as interest and finance charges as a result of amortizing the discount and beneficial conversion feature.  On October 29, 2008, the Company issued 793,720 shares of its common stock to holders of convertible promissory notes in lieu of an annual cash interest payment of $39,686.  The company also recorded $26,457 in conversion expense as a result of reducing the conversion price from $0.30 to $0.05 per share for this conversion.  In September 2009, holders of $1,090,000 in principal and $83,828 in accrued interest converted their notes into 23,476,566 shares of common stock at a conversion price of $0.05. These shares were issued in November 2009.  The Company recognized $391,276 in conversion expense in fiscal 2010 as a result of the reduction of the conversion price from $0.30 to $0.05 to induce the conversion.
 
On December 29, 2009, the Company issued a 60-Day Convertible Promissory Note to an accredited investor in the amount of $25,000.  The note is convertible at $0.02 per share and bears an interest rate of 6%.  This note was extended to May 28, 2010.
 
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CONVERTIBLE RELATED PARTY NOTES PAYABLE:
   
February 28,
   
August 31,
 
   
2010
   
2009
 
             
6.0% convertible note due March 31, 2012 (1)
  $ 235,025     $ 235,025  
                 
                 
Outstanding unsecured related party convertible notes payable
  $ 235,025     $ 235,025  
                 
(1)  Note Due 3/31/12 payable to former CEO who resigned 4/1/09.
               
                 

On April 1, 2009, we issued to Ms. Lindstrom, our former Chief Executive Officer, a convertible promissory note in lieu of payment of $235,025 in accrued salary owed to Ms. Lindstrom.  This note accrues interest at a rate of 6% per annum and is due on March 31, 2012.  The note is convertible into shares of the Company’s common stock at a rate of $0.05 per common share.  Ms. Lindstrom signed an abstention to convert this note until June 1, 2010.

 
RELATED PARTY NOTES PAYABLE:

On September 11, 2009, the Company issued a 90-Day promissory note to Anthony Silverman, its President and CEO, in the principal amount of $25,000.  The note bears an interest rate of 6%.  This note has been subsequently extended to July 11, 2010.

On February 22, 2010, the Company issued a 60-Day promissory note to Anthony Silverman, its President and CEO, in the principal amount of $25,000.  The note bears an interest rate of 6%.  This note has been subsequently extended to July 22, 2010.


   
February 28,
   
August 31,
 
   
2010
   
2009
 
6.00% note payable due July 11, 2010 (1)
  $ 25,000     $ -  
6.00% note payable due July 22, 2010 (1)
  $ 25,000        
                 
                 
Outstanding unsecured related party convertible notes payable
  $ 50,000     $ -  
                 
(1) Note payable to Anthony Silverman, the Company's President and CEO.
         
                 
 
 
OTHER NOTES PAYABLE: