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Note 7. Commitments and Contingencies
9 Months Ended
Sep. 30, 2011
Commitments and Contingencies Disclosure [Text Block]
Note 7.  Commitments and Contingencies

Litigation

In September 2008, the Company entered into an Arbitration Agreement with Steven Rash, the Company’s former Chief Executive Officer, in connection with his agreement to resign as the Company’s Chief Executive Officer.  The Company agreed to arbitrate Mr. Rash’s claims for wages of $36,031 and other compensation due, breach of contracts or covenants, and benefits, and the Company’s claims for embezzlement, fraud and breach of contract by Mr. Rash.  As of September 30, 2011, arbitration had not been initiated by either party and, as of that date, the Company did not believe a material loss is probable in connection with this matter.

In March 2009, McLennon Law Corporation filed a lawsuit against the Company in the Superior Court of the State of California in and for the County of San Francisco for breach of contract for accrued but unpaid attorney fees and accrued interest thereon.  In July 2010, a judgment was entered against the Company for a total of $148,683 for unpaid attorney fees and interest, all of which was accrued in the Company’s financial statements for the year ended December 31, 2010.  As of September 30, 2011, the Company did not intend to appeal the court’s ruling.  On October 4, 2011 the Board of Directors approved a good faith payment of 2,500,000 shares of the Company’s common stock to the McLennon Law Corporation.

In September 2009, Marion McCormick, one of the Company’s former non-executive employees, filed a lawsuit against the Company in the District Court for Montgomery County, Texas, 9th Judicial District, seeking damages and specific performance under a $30,000 convertible promissory note and a warrant exercisable into 1,000,000 shares of common stock.  In August 2010, the Company filed an amended answer and counterclaims against the former employee for breach of fiduciary duty and fraud.  The Company is disputing the amount, if any, that is due to the former employee under the note.  As of September 30, 2011, the Company did not believe a material loss is probable as a result of this litigation.

In February 2010, Transgenomic, Inc. (“Transgenomic”) filed a lawsuit against the Company in the United States District Court for the District of Nebraska.  The lawsuit contains claims for fraud, breach of contract, libel and slander, and sought a declaration of rights under a Collaboration and Exclusive License Agreement, dated January 23, 2009, between the parties that the Company had terminated on February 2, 2010.  In April 2010, the Company filed a partial motion to dismiss Transgenomic’s fraud claim.  In June 2010, the Company filed a lawsuit against Transgenomic in the District Court of Montgomery County, Texas, 359th Judicial District.  The lawsuit contained claims for trade secret misappropriation, breach of contract, misappropriation, conversion, unjust enrichment, quantum meruit and promissory estoppel as well as a request for injunctive relief.  In July 2010, the Company filed a non-suit to dismiss the case that the Company filed against Transgenomic in Texas without prejudice.  In July 2011, the Company agreed to enter mediation with Transgenomic in an attempt to resolve this matter.  Based on the July 22, 2011 mediation outcome with Transgenomic, the Company issued 5,555,556 shares valued at $44,444.  Also, as a result of this litigation, the Company was ordered to issue an additional 2,000,000 shares of common stock valued at $16,000 to legal counsel associated with this action and such shares were issued on September 26, 2011.

In March 2010, Rockmore filed a lawsuit against the Company in the Supreme Court for the State of New York.  The lawsuit contained claims for breach of contract and specific performance related to a convertible debenture in the amount of $31,677 and common stock warrant previously issued by the Company to Rockmore.  In September 2010, Rockmore filed a motion for summary judgment and injunction regarding its claims, and in October 2010, the Company filed an opposition to Rockmore’s motion. In October 2010, the court granted Rockmore’s motion for summary judgment, but denied its request for an injunction.  In March 2011, the Company entered into a settlement agreement with Rockmore pursuant to which the Company agreed to issue 12 million shares of its common stock to Rockmore in full payment of the outstanding balance of the debenture and accrued interest thereon, and for a full release from all claims filed by Rockmore against the Company.  The Company recorded a contingent loss in the amount of $169,818 in its financial statements for the year ended December 31, 2010 in accordance with the provisions of ASC Topic 450, “Contingencies” (“ASC 450”).  During the nine month period ended September 30, 2011 the Company issued the 12,000,000 shares due Rockmore from the settlement.

In April 2010, the Company filed a lawsuit against Richard Kraniak (“Kraniak”) and Roger Kazanowski (“Kazanowski”) in the United States District Court for the Southern District of Texas, Houston Division.  The lawsuit contained claims for violations of the Securities Act of 1933, as amended (the “Securities Act”), and the Securities and Exchange Act of 1934, as amended (the “Exchange Act”).  In May 2010, Kraniak and Kazanowski filed a motion to dismiss the lawsuit.  In June 2010, the Company filed a response to Kraniak and Kazanowski’s motion to dismiss as well as a first amended complaint against Kraniak and Kazanowski.  In October 2010, the Company filed a second amended complaint against Kraniak and Kazanowski, which it revised and re-filed in November 2010.  As of September 30, 2011, the Company did not believe a material loss is probable as a result of this litigation.

In July 2010, Kraniak and Kazanowski filed counterclaims against the Company in the United States District Court for the Southern District of Texas, Houston Division.  The counterclaims contained claims for breach of contract, misrepresentation, civil conspiracy and defamation.  In July 2010, the Company filed an answer to the counterclaims denying each of the alleged claims.  In December 2010, the Company filed motions for partial summary judgment with respect to each of the counterclaims filed by Kraniak and Kazanowski.  As of September 30, 2011, the Company is in good faith negotiations with Kraniak and Kazanowski to bring this matter to a close.  The Company does not believe a material loss is probable as a result of this litigation.

In April 2010, Neogenomics, Inc. (“Neogenomics”) filed a lawsuit and motion for summary judgment against the Company in the Supreme Court of the State of New York.  The lawsuit contained claims for breach of contract and specific performance related to the convertible debenture in the amount of $200,000 issued by the Company to Neogenomics in April 2007.  In May 2010, the Company filed a response to Neogenomic’s motion for summary judgment.  In December 2010, the court granted Neogenomic’s motion for summary judgment, awarding Neogenomics $217,457, comprised of $200,000 of principal under the debenture and $17,457 of accrued interest thereon.  As of September 30, 2011, the Company intended to appeal the court’s ruling.

In April 2010, Lucas Associates, Inc. (“Lucas Associates”) filed a lawsuit against the Company in the District Court of Montgomery County, Texas, 359th   Judicial District.  The lawsuit contained claims for breach of contract, quantum meruit and fraud related to allegations that the Company failed to pay Lucas Associates a finder’s fee in connection with the hiring of John Ginzler as the Company’s Chief Financial Officer in 2009.  In June 2010, the Company filed a general denial to the claims alleged in the complaint.  In November 2010, the Company entered into a settlement with Lucas Associates pursuant to which the Company agreed to pay $20,000 to Lucas Associates in monthly installments of $1,250 beginning January 14, 2011.  As of September 30, 2011 the Company had not made all of the required payments.

In April 2010, John Ginzler, the Company’s former Chief Financial Officer, filed a lawsuit against the Company in the District Court of Montgomery County, Texas, 359th Judicial District.  The lawsuit contained claims for breach of contract related to compensation owed to him under an employment agreement entered into between him and the Company.  In June 2010, the Company filed a general denial to the claims alleged in the complaint.  In February 2011, the Company entered into a settlement agreement with John Ginzler pursuant to which the Company agreed to issue 12,285,714 shares of its common stock to him in full payment of all amounts owed to him under the employment agreement and for a full release from all claims filed by him against the Company.  The Company recorded a contingent loss in the amount of $161,044 in its financial statements for the year ended December 31, 2010 in accordance with the provisions of ASC 450.  During the nine month period ended September 30, 2011 the Company issued the 12,285,714 shares due Mr. Ginzler as a result of the settlement agreement.

In May 2010, the Company filed a lawsuit against Able Income Fund LLC (“Able Income Fund”) in the United States District Court for the Southern District of Texas, Houston Division.  The lawsuit contained claims for violations of the Securities Act and the Exchange Act.  The Company subsequently moved for a default judgment on its claims due to Able Income Fund’s failure to timely respond to the Company’s lawsuit.  In November 2010, the Company’s motion for a default judgment was denied by the court. As of September 30, 2011, the Company did not believe a material loss is probable as a result of this litigation.

In July 2010, Able Income Fund filed a lawsuit against the Company in the Supreme Court of the State of New York.  The lawsuit contained claims for breach of contract and specific performance related to two convertible debentures in the aggregate amount of $450,000 previously issued by the Company to Able Income Fund.  In September 2010, the Company filed a motion to dismiss Able Income Fund’s lawsuit.  In November 2010, Able Income Fund filed an amended complaint alleging the existence of an outstanding convertible debenture in the amount of $72,176.  As of September 30, 2011, the Company did not believe a material loss is probable as a result of the litigation.

Employment and Consulting Agreements

On June 1, 2009, the Company entered into an Amended and Restated Consulting Agreement with Bronco Technology, Inc. (the “Bronco Consulting Agreement”).  Under the terms of the agreement, Ms. Park agreed to continue to serve as the Company’s Interim Chief Executive Officer until May 31, 2011.  Under verbal agreement Ms. Park continued in the position as the Company’s Interim Chief Executive until August 26, 2011 at which time the company’s Board of Directors agreed to extend this agreement till May 31, 2012.  In consideration for Ms. Park’s services, the Company agreed to pay Bronco Technology, Inc. $8,334 per month, subject to annual review by the Company’s board of directors or compensation committee of the board of directors, if any.  The Company also agreed to pay Bronco Technology a cash commission payment of an amount equal to one percent, but not to exceed $5,000 per month, of the royalties received by the Company from the sale of certain of its products through license agreements signed during the term of the consulting agreement.

Effective May 17, 2009, the Company entered into an Amended and Restated Employment Agreement with Dr. Ira L. Goldknopf (the “Goldknopf Employment Agreement”) to continue serving as the Company’s President and Chief Scientific Officer. The agreement is for a term of three years.  The Company agreed to pay Dr. Goldknopf an annual base salary of $100,000 through May 31, 2009, and an annual base salary of $125,000 for the remainder of the term, subject to annual review by the Company’s board of directors or compensation committee of the board of directors, if any.

Operating Leases

In May 2010, the Company entered into a commercial lease for its corporate headquarters located in The Woodlands, Texas pursuant to which the Company leased approximately 1,500 square feet of space for a fixed monthly rent payment of $2,500.  The Company was required to make annual rent payments of $30,000 and $15,000 during 2011 and 2012, respectively.  The lease expires on June 30, 2012.  During September 2011, the Company was requested to vacate the premises due to lack of payment, at which time the Company moved its administrative offices to its laboratory facility located at 26202 Oakridge Drive, The Woodlands, Texas 77380 and expensed the $5,000 rent deposit that was previously reflected on its balance sheet.

In June 2010, the Company entered into a commercial lease for its laboratory facilities located in The Woodlands, Texas pursuant to which the Company leases approximately 3,000 square feet of space for an initial monthly rent payment of $5,587.  The Company will be required to make annual rent payments of $68,532, $71,514, $73,008, $74,496 and $37,992 during 2011, 2012, 2013, 2014 and 2015, respectively.  The lease expires on June 30, 2015.