In January 1999, we were sued in the Superior Court of San Diego County,
California by the Fish Family Trust, a co-inventor of the original ShBoom
technology.  The suit also named as defendants nanoTronics and Gloria Felcyn on
behalf of the Falk Family Trust.  The suit sought a judgment for damages, a
rescission of the Technology Transfer Agreement and a restoration of the
technology to the co-inventor.   In March 1999, we joined with nanoTronics and
Gloria Felcyn and filed our response and cross-complaint against the Fish Family
Trust.  In November 2000, the judge issued a summary ruling in favor of the
defendants on all counts.   The Fish Family Trust filed an appeal in January
2001.  Management believes that it is unlikely that the appellate court will
overturn the trial court's ruling and that the resolution of the appeal process
will have no impact on our financial position, income or cash flows.


In September 2001, an action was filed against us in the Superior Court of
San Diego County, California by Richard G. Blum, our former Chairman, President
and Chief Executive Officer.  Mr. Blum contended that he was wrongfully
terminated on August 5, 2001 in violation of his employment agreement dated
December 1, 2000.  He sought damages for the alleged breach of his employment
agreement, age discrimination, as well as other related claims.  In October
2002, we entered into a settlement agreement with Mr. Blum whereby we agreed to
pay him $60,000 over twelve months and to issue him 400,000 shares of our common
stock.  This liability has been recorded in our consolidated financial
statements for the six months ended November 30, 2002.