On December 29, 2011 the Company entered into
an Assignment Agreement (Assignment) with Syzygy Licensing, LLC (Syzygy)
pursuant to which the Company acquired all technology and intellectual property covered by the License and Royalty
Agreement (License) dated September 27, 2010 previously entered into between the parties. The Assignment terminated
the License and all future royalty obligations owed by the Company
to Syzygy thereunder. Pending patent applications comprising part of the intellectual property were
also assigned to the Company. Syzygy is owned by the Companys President, Elwood G. Norris (65%), and by the Companys
Chief Financial Officer, Treasurer and Secretary, James A. Barnes (35%).
Under the terms of the Assignment, the Company
issued 300,000 shares of its common stock to Syzygy (valued at
$975,000 based on the closing price of the common stock of $3.25) and agreed to pay and in June 2012 paid $250,000 to Syzygy. The
Company valued the technology in accordance with ASC 350-30-30, Intangible - Goodwill and Other - General Intangibles Other
than Goodwill - Initial Measurement, and ASC 805-50-30, Business Combinations Related Issues Initial Measurement,
which requires that intangible assets acquired through a transaction that is not a business combination be measured based on the
cash consideration paid plus either the fair value of the non-cash consideration given or the fair value of the assets acquired,
whichever is more clearly evident. As the Company had only recently begun selling products based on the acquired technology and
intellectual property in the fourth quarter of fiscal 2011, management determined that the fair value of the common stock issued
was more clearly evident, and accordingly, recorded the acquired intangible assets at the aggregate amount of $1,225,000. The Company
incurred $3,194 of royalties for the three months ended December
31, 2011 prior to termination of the License and owed Syzygy an aggregate of $7,028 in
royalties, which was paid in April 2012. The Company incurred $3,834 as royalties pursuant to License during the year ended
September 30, 2011.
Prior to termination of
the License the Company was obligated to reimburse Syzygys costs, in filing for, prosecuting and maintaining the licensed
patents in the United States. The Company incurred and capitalized $2,852 and $28,237 related to such licensed patents during the
fiscal year ended September 30, 2012 (prior to termination) and 2011, respectively.
See Notes 5, 6, 8 and 10
for additional related party transactions and information.