"During the fiscal years ended December 31, 2009 and 2008 and through the date of dismissal, Webb & Co. advised the Company that the internal controls necessary for the Company to develop reliable financial statements are not effective because of material weaknesses in the Company’s internal control over financial reporting. These material weaknesses include (i) the Company does not have a system in place to ensure all of its consulting agreements are timely reconciled to the financial statements; and (ii) the Company failed to properly account for the embedded derivative liability associated with the CEO’s employment agreement in the Company’s quarterly and annual reports. The Company is currently taking steps to address these material weaknesses."
Yes, the derivative liability problem was fixed.
The source of this potential problem was that Kim T's contract called for large bonuses when certain milestones such as the creation of the first transgenic worm, the creation of the first silkworm fiber containing spider silk protein, etc. were reached.
The issue was fixed by Kim T. voluntarily giving up and forgiving all of the bonuses owed to him and all future bonuses based upon performance.
This was a RARE event!!!
A development stage company Founder/CEO giving up his future income for the good of the company!