Related Party Transactions

12 Months Ended

Sep. 30, 2011

Related Party Transactions

Related Party Transactions

Note 3 — Related Party Transactions

We have borrowed funds for our operations from certain major stockholders, directors and officers as disclosed below.

We have an unsecured note payable due to Deanna Stromback, a principal shareholder and former director and sister of our former Chairman, Rich Stromback, which bears interest at 4% per annum with principal and interest due on December 31, 2009.  As of September 30, 2011 and September 30, 2010, the note had an outstanding balance of $110,500.  The accrued interest on the note was $23,491 and $18,263 as of September 30, 2011 and September 30, 2010, respectively.  The note is currently in default and carries conversion rights that allow the holder to convert all or part of the outstanding balance into shares of our common stock upon mutually agreeable terms and conversion price.

We have an unsecured note payable due to Doug Stromback, a principal shareholder and former director and brother of our former Chairman, Rich Stromback, which bears interest at 4% per annum with principal and interest due on December 31, 2009.  As of September 30, 2011 and September 30, 2010, the note had an outstanding balance of $133,000.  The accrued interest on the note was $28,281 and $21,988 as of September 30, 2011 and September 30, 2010, respectively.  The note is currently in default and carries conversion rights that allow the holder to convert all or part of the outstanding balance into shares of our common stock upon mutually agreeable terms and conversion price.

We have an unsecured note payable to Equity 11, Ltd. (“Equity 11”) which is controlled by James Juliano, our Chairman. This note bears interest at 5% per annum and is convertible under certain conditions. It is due within 15 days of demand by the holder. As of September 30, 2011 and September 30, 2010, the note had an outstanding balance of $7,716.  Accrued interest of $913 and $494 was outstanding of September 30, 2011 and September 30, 2010, respectively.   This note was converted into shares of our common stock at a conversion price of $.50 per share on November 3, 2011.  See Note 10 – Subsequent Events.

We have an unsecured note payable to Equity 11. This note bears interest at 5% per annum and is convertible under certain conditions. It is due within 15 days of demand by the holder. As of September 30, 2011 and September 30, 2010, the note had an outstanding balance of $6,500.  Accrued interest of $699 and $350 was outstanding of September 30, 2011 and September 30, 2010, respectively.  This note was converted into shares of our common stock at a conversion price of $.50 per share on November 3, 2011.  See Note 10 – Subsequent Events.

We have an unsecured note payable to Equity 11. This note bears interest at 5% per annum and is convertible under certain conditions. It is due within 15 days of demand by the holder. As of September 30, 2011 and September 30, 2010, the note had an outstanding balance of $3,600. Accrued interest of $343 and $152 was outstanding of September 30, 2011 and September 30, 2010, respectively.  This note was converted into shares of our common stock at a conversion price of $.50 per share on November 3, 2011.  See Note 10 – Subsequent Events.

We have an unsecured note payable to Equity 11. This note bears interest at 5% per annum and is convertible under certain conditions. It is due within 15 days of demand by the holder. As of September 30, 2011 and September 30, 2010, the note had an outstanding balance of $3,516. Accrued interest of $282 and $98 was outstanding of September 30, 2011 and September 30, 2010, respectively.  This note was converted into shares of our common stock at a conversion price of $.50 per share on November 3, 2011.  See Note 10 – Subsequent Events.

We have an unsecured note payable to Equity 11. This note bears interest at 5% per annum and is convertible under certain conditions. It is due within 15 days of demand by the holder. As of September 30, 2011 and September 30, 2010, the note had an outstanding balance of $5,000. Accrued interest of $387 and $125 was outstanding as of September 30, 2011 and September 30, 2010, respectively.  This note was converted into shares of our common stock at a conversion price of $.50 per share on November 3, 2011.  See Note 10 – Subsequent Events.

We have an unsecured note payable to Equity 11. This note bears interest at 5% per annum and is convertible under certain conditions. It is due within 15 days of demand by the holder. As of September 30, 2011 and September 30, 2010, the note had an outstanding balance of $6,500. Accrued interest of $496 and $157 was outstanding as of September 30, 2011 and September 30, 2010, respectively.  This note was converted into shares of our common stock at a conversion price of $.50 per share on November 3, 2011.  See Note 10 – Subsequent Events.

We have an unsecured note payable to Nirta Enterprises, LLC. This note bears interest at five percent 5% per annum and is convertible under certain conditions.  The note was payable in full on September 30, 2010 and is in default.  Nirta Enterprises, LLC is wholly owned by Joseph Nirta, a member of our Board of Directors.  As of September 30, 2011 and September 30, 2010, the note had an outstanding balance of $24,000. Accrued interest of $1,806 and $555 was outstanding as of September 30, 2011 and September 30, 2010, respectively.  This note was converted into shares of our common stock at a conversion price of $.50 per share on November 3, 2011.  See Note 10 – Subsequent Events.

We have a secured note payable to John Salpietra, a member of our Board of Directors. This note bears interest at 4.75% per annum, is secured by a lien on our intellectual property, and is convertible into shares of our common stock at $.06 per share. On December 15, 2011, the parties agreed to extend the due date to December 4, 2012. As of September 30, 2011 and September 30, 2010, the note had an outstanding balance of $600,000 and $528,000, respectively. Accrued interest of $36,366 and $7,294 was outstanding as of September 30, 2011 and September 30, 2010, respectively.

On March 30, 2011, we paid $74,862 to James Juliano to reimburse him for legal fees that he paid on our behalf for counsel to our Board of Directors, shareholder communications, negotiating our new investment agreement, and for negotiations with two note holders.

On September 2, 2010, we entered into a lease with Omega Development Corporation for office space for our headquarters located in Warren, Michigan.  Omega Development Corporation is owned by James Juliano.  The lease was effective June 17, 2010 with a term ending December 17, 2010.  Effective May 1, 2011, we entered into a lease with J.M. Land Co. for the same office space. J.M. Land Co. is owned by James Juliano. We pay monthly rent of $1,000, and the gas and electric utilities which has historically averaged approximately $1,000 per month.   See also Note 5—Commitments and Contingencies—Lease Agreements.  

On April 22, 2011, our Board of Directors approved compensation for our Chairman, James Juliano, of $4,000 per month. We paid $20,000 in director fees to Mr. Juliano for the year ended September 30, 2011.  We did not pay any director fees to Mr. Juliano for the year ended September 30, 2010.