Exchange Agreement

12 Months Ended

Dec. 31, 2011

Exchange Agreement

10. Exchange Agreement:

On March 28, 2006, the Company entered into an exchange agreement with Ronald L. Schutté, its former Chairman and CEO, whereby the Company exchanged $1,145,315 in assets in exchange for $1,145,315 of the $1,945,315 liabilities of the Company which included some of the debt due to Mr. Schutté. The balance of the Company’s $800,000 obligation to Mr. Schutté was to be extinguished upon the Company raising additional capital. Mr. Schutté also assumed the balance of the building lease and various equipment leases. On April 29, 2010, pursuant to a Debt Conversion Agreement that we entered into with Mr. Schutte we converted this obligation into shares of common stock (see footnotes 5 and 7).

The Company also entered into an exclusive licensing agreement with Mr. Schutté and a company owned by Mr. Schutté whereby, the Company receives one percent of sales as a royalty for use of the Company’s trademarks. Mr. Schutté also acquired the stock of the Company’s J.M. Specialty, Inc. subsidiary. Licensing fees were $12,000 and $12,906 for 2011 and 2010 respectively.