Related Party Transactions

9 Months Ended

Sep. 30, 2011

Related Party Transactions [Abstract]

Related Party Transactions

NOTE D — RELATED PARTY TRANSACTIONS

[1] Effective January 1, 2008, our board of directors instituted a compensation plan for James and Keith Gleasman ("the Gleasmans") by which we would compensate each of them for services performed and inventions and know-how transferred to us at the rate of $300,000 per year. Actual payment of this compensation, or any portion thereof, was conditioned upon a board of director determination that we had the requisite cash, after the complete funding of all ongoing company projects, to make payment.

We did not have the requisite cash available to pay the Gleasmans' compensation under this arrangement from January 1, 2008 through August 17, 2009, the date on which each of the Gleasmans waived all of his rights and interest in and to the board-created compensation plan, including all of his rights and interest in and to the amount(s) under the plan accrued to such date. As a result of such waiver, of the $942,000 accrued under the plan at June 30, 2009, $900,000 was reclassified to equity as a contribution of services and $42,000 accrued under the plan for payroll taxes was recorded as a reduction to general and administrative expenses in the quarter ended June 30, 2009.

For periods for which there is no compensation plan, we are required to record the estimated value of each of the Gleasman's services rendered to us (estimated at $300,000 each per annum) as a contribution of services under generally accepted accounting principles and are required under the same accounting principles to allocate the amount of such contribution between research and development expenses and general and administrative expenses. For the three and nine month periods ended September 30, 2011, we recorded a total of $75,000 and $225,000 in expense related to management's estimate of value received for the Gleasmans' time, of which $25,000 and $75,000, respectively, was allocated to research and development, with the remainder allocated to general and administrative expense. For the three and nine month periods ended September 30, 2010, we recorded a total of $75,000 and $286,000 in expense related to management's estimate of value received for the Gleasmans' time, of which $25,000 and $100,000, respectively, was allocated to research and development, with the remainder allocated to general and administrative expense.

Effective March 14, 2010, James Gleasman retired as our chief executive officer, interim chief financial officer and as a member of the board of directors.

During the year ended December 31, 2009, James Gleasman loaned us $22,000 for compensation to the engineers. As of December 31, 2010, we had repaid the full amount of this loan.

[2] During the three and nine month periods ended September 30, 2011, we paid a total of approximately $26,000 and $74,000, respectively, in cash to a member of the Gleasman family for administrative, technological and engineering services. During the three and nine month periods ended September 30, 2010, we paid a total value of approximately $23,400 and $60,450, respectively, in a combination of cash and shares of common stock for such services.

[3] During the three and nine month periods ended September 30, 2011, we paid a total of approximately $24,000 and $68,000, respectively, in cash to a family member of our general counsel for engineering services. During the three and nine month periods ended September 30, 2010, we paid a total value of approximately $21,480 and $62,650, respectively, in a combination of cash and shares of common stock for such services.

[4] On September 14, 2007, we moved our executive offices from Pittsford, New York to Rochester, New York, which includes both a manufacturing and executive office facility. The Rochester facility is owned by a partnership, with which Asher J. Flaum, a company director, is associated. On April 28, 2008, our board of directors approved the terms of a lease and such lease was executed on April 29, 2008. (See Note H[1].)

[5] On August 18, 2006, we granted 400,000 nonqualified common stock warrants valued at approximately $1,237,000 for consulting services to an enterprise, one of whose members was a director. The warrants were immediately exercisable at $3.27 per common share for a period of ten years. These warrants were modified by mutual agreement of the parties effective October 15, 2010. These modified warrants are immediately exercisable at $0.44 per common share for a period of ten years from the modification date. This modification was valued at $68,000 and we recognized this expense in the fourth quarter of 2010.

[6] On October 26, 2010, we issued 164,187 common shares valued at approximately $62,400 to each of our chairman of the board and general counsel for services rendered in connection with the engagement of our new chief executive officer.

[7] On December 13, 2010, we executed a consulting agreement with a director to provide consulting services to us at a rate of $200 per hour. Pursuant to the agreement, we also agreed to pay the consultant an incentive fee equal to $10,000 or proportionate part thereof for each $1,000,000 of revenue or proportionate part thereof actually received by us for a period of five years, provided the definitive agreement with the third party results from the material efforts of the consultant. Through September 30, 2011, we have not recorded any expense for services rendered in relation to this agreement.

[8] On September 23, 2011, we sold and issued a total of 16,250,000 shares of Series C Voting Convertible Preferred Stock and warrants to purchase 1,625,000 shares of our common stock in a private placement transaction, generating gross proceeds of $6,500,000.  Three members of our board of directors and one executive officer participated in the transaction, acquiring 687,500 preferred shares and associated warrants for $275,000 (approximately 4.2 percent of the entire transaction).  (See Note G[2](c).)