|Note 9. Related Party Transactions
A related party
is generally defined as (i) any person that holds 10% or more of the Companys securities and their immediate families, (ii)
the Companys management, (iii) someone that directly or indirectly controls, is controlled by or is under common control
with the Company, or (iv) anyone who can significantly influence the financial and operating decisions of the Company. A transaction
is considered to be a related party transaction when there is a transfer of resources or obligations between related parties.
For services rendered
in the capacity of a Board member, non-employee Board members received $2,500 through the our first fiscal quarter ended November
30, 2010, and $3,750 per quarter thereafter. New Board member compensation is pro rated in their first quarter. During the years
ended August 31, 2012 and 2011, the Company incurred $91,200 and $64,013, respectively in cash based Board compensation. Additionally,
the Company recognized stock based compensation expense related to stock options granted for
services rendered by non-employee directors of the Company (See Note 7 - Stock Options above) during the years
ended August 31, 2012 and 2011 of $90,297 and $341,429, respectively.
March 21, 2011,
Todd Pitcher was elected to the Board and received $3,750 per quarter for his Board related services. On May 19, 2011, the Company
entered into an Advisory Engagement Agreement (the Agreement) with Aspire Clean Tech Communications, Inc., a private
corporation wholly owned by Mr. Pitcher. Pursuant to the Agreement Mr. Pitcher provided ongoing corporate advisory and support
services - until the parties agree otherwise in writing - in exchange for compensation of $3,500 per month plus reimbursement of
business related, out-of-pocket expenses. On July 1, 2011, the Agreement was amended to increase the monthly compensation from
$3,500 to $10,000 due to the increased level of time required for Mr. Pitcher to execute his duties. On September 30, 2011, the
Agreement was further amended to include the addition of a $1,000 per month health insurance reimbursement retroactively applied
to include the month of July 2011. On December 8, 2011, Mr. Pitcher resigned from the Board and ceased performing services for
the Company. The Company paid Mr. Pitcher $30,000 upon receipt of an executed Mutual Termination and Release.
On February 2,
2011, the Company entered into an employment agreement with Mr. Scott Taper pursuant to which Mr. Taper was appointed the Companys
Vice President of Business Development. Pursuant to the terms of the employment agreement, Mr. Taper was entitled to an annual
salary of $90,000, which would increase to $100,800 if certain milestone were met, and a stipend of $1,000 per month to cover medical
insurance premiums until such time as the Company could provide an alternative medical insurance plan. The employment agreement
provided that Mr. Tapers employment by the Company was at-will employment and may be terminated by Mr. Taper
or the Company at any time, with or without cause, and for any reason whatsoever, upon written notice to the other. On February
28, 2011, Mr. Taper, resigned as the Companys Vice President of Business Development.
On February 1,
2011, the Company entered into a consultancy agreement with Mr. Elliot Maza pursuant to which Mr. Maza was appointed the Companys
Chief Financial Officer. Pursuant to the terms of the consultancy agreement, Mr. Maza was entitled to a monthly fee of $7,500.
The consultancy agreement provides that Mr. Mazas engagement was on a part-time basis and at-will and may
be terminated by Mr. Maza or the Company at any time, with or without cause, and for any reason whatsoever upon written notice
to the other. On August 31, 2011, Mr. Maza, resigned as the Companys CFO.
On December 17,
2010, the Company entered into an employment agreement with Mr. Farago pursuant to which Mr. Farago was appointed the Companys
Chief Operating Officer. Pursuant to the employment agreement, Mr. Farago was entitled to an annual salary of $150,000, to increase
to $250,000 if the Company consummates either an equity or debt financing or series of financings with net proceeds of at least
$7,000,000 and a stipend of $1,000 per month to cover medical insurance premiums until such time as the Company could provide an
alternative medical insurance plan. The employment agreement provides that Mr. Faragos employment by the Company was at-will
employment and may be terminated by Mr. Farago or the Company at any time, with or without cause, and for any reason whatsoever
upon written notice to the other. Also on December 17, 2010, the Board approved,
and the Company granted, Mr. Farago a stock option to purchase 500,000 shares of the Companys common stock at an exercise
price of $6.21 per share, the fair market value of the Companys common stock on the date of grant. The stock option expired
ten years from the date of grant and was subject to various vesting terms. Effective as of August 12, 2011, Mr. Andrew Farago
resigned as the Chief Operating Officer. On the date of his resignation Mr. Farago had vested 83,334
options which which expired unexercised on August 12, 2012.
The law firm of
Sierchio & Company, LLP, of which Joseph Sierchio, one of the Company's directors, is a principal, has provided counsel to
the Company since its inception. In July 2008, the Company asked Mr. Sierchio to join the Company's Board. During the years ended
August 31, 2012 and 2011, the law firm of Sierchio & Company, LLP provided $176,404 and $198,142, respectively, of legal services.
At August 31, 2012, the Company owed Sierchio & Company LLP $22,198 which is included in accounts payable.
All related party
transactions are recorded at the exchange amount established and agreed to between related parties and are in the normal course