As further described in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2006, in December 2006, the Audit Committee of the Company's Board of Directors completed a voluntary review of historical stock option grants and determined that errors had been made in the determination of measurement dates for a number of stock options granted prior to December 31, 2003. Based on its analysis of payroll tax liabilities relating to the above, the Company accrued a payroll tax liability in the amount of $200,601 as of September 30, 2006. During the Company's fiscal third quarter ended June 30, 2007, the Company revised its estimated payroll tax liability related to this matter to $65,000 as a result of certain assumptions which at that time, the Company believed would reduce the liability to this level. Following extensive subsequent analysis by the Company, its consultants and its independent registered public accounting firm, the Company determined that the reduction of the estimated payroll tax liability recorded during the fiscal third quarter resulted in an understatement of the payroll tax liability as of June 30, 2007 in the amount of $135,601 based on the final amended payroll tax filings and due to an increase for estimated penalties and interest that the Company now believes may be assessed. The revised estimates resulted in a $135,601 increase in total payroll tax liability and selling and administrative expenses for the three and nine months ended June 30, 2007. Following this adjustment, the aggregate estimated payroll tax liability related to prior tax years at the end of the Company's fiscal third quarter ended June 30, 2007 was $200,601.

When the Company files its Annual Report on Form 10-K for the fiscal year ended September 30, 2007 and its amended Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 2007 to effect the restatement described above, management expects the Company to report the existence of a material weakness in the Company's internal control over financial reporting relating to its accounting for payroll taxes.