COMMITMENTS AND CONTINGENCIES

3 Months Ended

Mar. 31, 2012

COMMITMENTS AND CONTINGENCIES

NOTE 11. COMMITMENTS AND CONTINGENCIES

Legal Proceedings

On January 19, 2010, James McKay and Celebrity Foods, Inc. filed a lawsuit against us (the Company) and William Donovan, M.D., individually, in the United States District Court, Eastern District of Pennsylvania. Based on the lawsuit, in March 2009, the plaintiffs contacted our transfer agent to have restrictive legends removed on shares the plaintiffs had previously obtained from us in connection with a stock purchase agreement. We subsequently requested that the transfer agent place a stop transfer order on the shares. The plaintiffs alleged that our actions constitute a breach of contract, fraud and/or unjust enrichment. They are seeking monetary and punitive damages, attorneys’ fees and costs, as well as a divestment of all shares and a rescission of the stock purchase agreement. We filed a motion to dismiss in April 2010. The Court ruled on this motion and dismissed all fraud counts. In July 2011, the Court granted the plaintiffs' motion for judgment on the pleadings and dismissed our counterclaim. In February 2012, the Court granted in part and denied in part the plaintiff's motion for partial summary judgment and our cross-motion for summary judgment. The Court found the initial stop transfer in March 2009 was proper under the terms of the mutual release and settlement agreement. The Court also found that the subsequent request by the plaintiffs in November 2009 put us on notice that the restrictive legends should have been lifted. The Court granted plaintiffs summary judgment as to the breach of contract claim and granted our summary judgment as to plaintiffs' good faith and unjust enrichment claims. The Court also denied plaintiffs divestment and rescission claims. Because the court specifically ruled that this is a breach of contract matter, plaintiffs' claim for punitive damages is moot as a matter of contract law. Although we believe the plaintiffs’ damages claim is without merit, there can be no assurance that the outcome of this case will be favorable to us. As a result, the parties have engaged in earnest settlement discussions and a settlement conference has been scheduled. Should settlement fail, the parties will proceed before the Court on plaintiffs’ alleged damages and reasonableness of their attorney's fees claim.