Commitment and Contingencies

12 Months Ended

Sep. 30, 2011

Commitment and Contingencies

Commitments and Contingencies

 Note 5 — Commitments and Contingencies

Consulting Agreements.

On September 17, 2008, we entered into an agreement with RJS Consulting LLC (“RJS”), an entity owned by our former chairman of the Board of Directors, Richard Stromback, under which RJS would provide advice and consultation to us regarding strategic planning, business and financial matters, and revenue generation.  The agreement expired on September 17, 2011 and called for monthly payments of $16,000, commissions on licensing revenues equal to 15% of said revenues, commissions on product sales equal to 3% of said sales, $1,000 per month to pay for office rent reimbursement, expenses associated with RJS’s participation in certain conferences, information technology expenses incurred by the consultant in the performance of duties relating to the Company, and certain legal fees incurred by Richard Stromback during his tenure as our Chief Executive Officer. Stromback did not perform any services under this agreement. We therefore stopped accruing amounts due under this agreement and wrote off the amount previously due in fiscal year 2010.

On September 17, 2008, we entered into an agreement with DAS Ventures LLC (“DAS”) under which DAS would act as a consultant to us.  DAS Ventures, LLC is wholly owned by Doug Stromback, a principal shareholder and former director and brother of Rich Stromback.   Under this agreement, DAS was to provide business development services for which it would receive commissions on licensing revenues equal to 15% of revenues and commissions on product sales equal to 3% of said sales and reimbursement for information technology expenses incurred by the consultant in the performance of duties relating to the Company. This agreement expired on September 17, 2011.  We did not record any expense for this agreement during either fiscal year 2011 or 2010.

Employment Agreements.

On January 1, 2007, we entered into an employment agreement with Sally J.W. Ramsey who is our founder and serves as VP of New Product Development. The agreement expires on January 1, 2012.   She was paid an annual base salary of $180,000 in 2007.  From January 1, 2008 through December 15, 2008, she received an annual base salary of $200,000. On December 15, 2008, we amended the agreement to reduce Ms. Ramsey’s annual base salary to $60,000 and on September 21, 2009 her annual salary was increased to $75,000.  On May 18, 2011, we increased her annual base salary to $100,000. Additionally, on April 22, 2011, she forfeited previously issued stock options and received options to purchase 2.1 million shares of our common stock at a price of $0.20 per share. The options vested upon issuance and expire on April 22, 2021.  

On September 21, 2009, we entered into an employment agreement with Robert G. Crockett, our CEO. Mr. Crockett has served as our CEO since September 15, 2008. The agreement expires on September 21, 2012. Mr. Crockett receives an annual base salary of $200,000.  On April 22, 2011, Mr. Crockett forfeited previously issued stock options and  he received options to purchase 1.8 million shares of our common stock at a price of $.20 per share.  The agreement may be terminated prior to the end of the term for cause. If Mr. Crockett’s employment is terminated without cause or for “good reason,” as defined in the agreement, he is entitled to 50% of the salary that would have been paid over the balance of the term of the agreement. Further, a termination within one year after a change in control shall be deemed to be a termination without cause. As of September 30, 2011, Mr. Crockett had deferred $40,000 of his salary since May 2010.  

On September 21, 2009, we entered into an employment agreement with Daniel V. Iannotti, our Vice President, General Counsel & Secretary. Mr. Iannotti served as our Vice President, General Counsel from August 11, 2008 until March 23, 2010 and rejoined us on May 17, 2010. His employment agreement expires on September 17, 2012. Mr. Iannotti receives an annual base salary of $100,000. On April 22, 2011, Mr. Iannotti forfeited previously issued stock options and received options to purchase 300,000 shares of our common stock at a price of $.20 per share.  The agreement may be terminated prior to the end of the term for cause. If Mr. Iannotti’s employment is terminated without cause or for “good reason,” as defined in the agreement, he is entitled to 50% of the salary that would have been paid over the balance of the term of the agreement. Further, a termination within one year after a change in control shall be deemed to be a termination without cause.

Contingencies.

On November 18, 2009, Investment Hunter, LLC, one of our note holders, filed suit in the Supreme Court of New York for repayment of $360,920 plus 25% interest, attorneys’ fees and costs.  We have previously made payments totaling $300,000 to Investment Hunter.  On March 15, 2010, the Court found in favor of Investment Hunter, LLC and awarded it $367,000 plus interest from the date of the lawsuit. A judgment against us in the amount of $367,000 plus interest was entered on August 4, 2010.  We had accrued $440,267 including interest relating to this note, as of December 31, 2010. We settled this lawsuit on March 4, 2011 for less than the amount we had accrued.

On December 15, 2009, McLarty Associates LLC, one of our prior consultants, filed suit in the Superior Court in Washington, D.C. against us seeking an additional $150,000 from us under our consulting agreement.  We had previously paid McLarty Associates $210,000 and issued 18,000 shares of common stock. On August 5, 2010, the court granted McLarty’s motion for summary judgment and on August 6, 2010 the court entered a judgment against us in the amount of $150,000. The amount was included in accounts payable on our balance sheet as of September 30, 2010.  We settled this lawsuit on February 28, 2011 for less than the amount we had accrued.

 On September 12, 2010, Thomson Reuter (Markets), LLC filed suit in the 37th Judicial District Court in Warren, Michigan for nonpayment of services provided in the amount of $20,297 plus interest.  We settled this lawsuit on February 28, 2011.  We settled this lawsuit on March 23, 2011 for less than the amount we had accrued.

On October 26, 2010, Mitch Shaheen, one of our note holders, filed suit in the United States District Court for the Eastern District of Michigan seeking repayment of principal, 25% interest and attorneys’ fees for amounts under promissory notes we issued to him in the original principal amount of $250,000.  Our position is that a settlement was reached by the parties.  We have filed an answer and have been engaged in discussions to resolve his suit. We have recorded a liability of $559,626 on our balance sheet including interest relating to this note as of September 30, 2011.

On October 26, 2010, Semple, Marchal & Cooper, LLP, our former auditor, filed suit in the Superior Court of the County of Maricopa Arizona for nonpayment of professional fees in the amount of $37,882 plus interest.  We had accrued $61,845 in our accounts payable as of December 31, 2010 for this vendor. We settled this lawsuit on February 28, 2011.   We settled this lawsuit on January 15, 2011 for less than the amount we had accrued.

Lease Commitments.

a.

We lease office and lab facilities in Akron, OH on a month-to-month basis for $1,200 per month.  Rent expense for the three months ended June 30, 2011 and 2010 was $18,600 and $21,000, respectively. Rent expense for the six months ended June 30, 2011 and 2010 was $9,000 and $10,800, respectively.

b.

Effective May 1, 2011, we entered into a lease with J.M. Land Company for office space for our headquarters located in Warren, Michigan.  The lease was effective May 1, 2011 and expires on April 30, 2012.  This lease replaces the earlier lease agreement on the same premises.   Monthly rent is $1,000 and  we pay the gas and electric utilities for our headquarters building which has historically averaged approximately $1,000 per month.  Rent and utilitiesexpenses for the year  ended September 30, 2011 totaled $13,121.

Minimum future rental payments under the above operating leases as of September 30, 2011 are as follows:

Year Ending September 30,	Amount
2012	$14,000
TOTAL:	$14,000