NOTE 7 - COMMITMENTS AND CONTINGENCIES

3 Months Ended

Mar. 31, 2012

Commitments and Contingencies Disclosure [Text Block]

NOTE 7 – COMMITMENTS AND CONTINGENCIES

On October 1, 2009, the Company signed a forty-eight month leasing agreement to finance the acquisition of a new diesel generator. The remaining lease commitment is $23,715 including taxes and interest. After the final payment, the Company will have the option to purchase the equipment for $10 at the end of the lease term. The lease commitment is personally guaranteed by one of the Company’s Officers. The acquisition of the generator has been recorded under Property and Equipment net of tax and interest in the amount of $27,709.

On February 12, 2010, the Company signed a thirty-seven month leasing agreement to finance the acquisition of a bobcat / loader. The total lease commitment is $23,421 including taxes and interest. After the final payment, the Company will have the option to purchase the equipment for $1,800 at the end of the lease term. The lease commitment is personally guaranteed by one of the Company’s Officers. The acquisition of the bobcat has been recorded under Property and Equipment net of tax and interest in the amount of $18,150.

As of March 31th		Principal		Taxes		Insurance		Interest		Total
2011	$	10,273	$	1,488	$	864	$	4,625	$	17,250
2012	$	10,273	$	1,488	$	864	$	4,625	$	17,250
2013	$	8,717	$	1,216	$	864	$	3,921	$	14,718
2014	$	1,401	$	168	$	216	$	628	$	2,413

Lease Commitments

The Company signed a thirty-six month lease in July 2009 for its current premises payable at a rate of approximately $916 per month ($ 11,520 per year) and a total commitment during the lease term of $34,560.

Product Warranties

The Company provides a one-year warranty with the sale of new equipment limited to non-electrical components. During the warranty period, the Company will repair or replace, at the Company’s sole option, without charge to purchaser, any defective component part of the KDS Micronex™. The Limited Warranty does not apply to any consumable parts, such as the chains, bars or belts. Upon receipt of a valid claim, the Company will promptly repair or replace the defective product. The warranty is conditional upon proper use of the product by the purchaser as per Customer’s Purchase and Sale Agreement. The Purchaser must document regular maintenance as per Owner’s Manual. The warranty does not cover defects or damage resulting from accident, misuse, abuse, neglect, unusual physical, electrical or electromechanical stress, modification of the product or use of the product with unauthorized equipment or accessories. Electrical motors and electrical panel are specifically excluded from the warranty.

The Company has an offsetting guarantee from its manufacturer to cover any costs caused by a manufacturers’ defect during the warranty period, and consequently does not anticipate any liability to be incurred under the warranty program.

Performance guarantees

In a special case, the Company sold one machine during the year and received a partial payment. The intent was to allow the customer, with our assistance, to adapt the equipment to their specific use and local conditions. The final payment is contingent upon achieving those certain performance conditions. To date, those conditions have not been met. In fiscal 2010, the partial payment was included in revenue, and if and when the final payment of $ 100,000 is collected, it will be included in revenue.

Deposits received on future sales

In May 2007, the Company received a deposit of $118,764 for the sale of one KDS machine from a customer in Europe. The machine was fabricated and ready for shipment. The balance of the purchase price was never received as the customer was unable to obtain financing and the machine was not delivered to the customer. At this point in time all communications with the customer ceased. Since specialty components were used and we had no further contact with the customer, the deposit was deemed non-refundable and recorded as income in fiscal year 2008. In August 2010, the customer resurfaced and requested a refund. We advised them that the deposit was non-refundable, but agreed to apply the deposit as a credit against a future machine purchase at current market prices. The customer is not prepared to complete the purchase at present, but if they do, we will apply their original deposit and record a settlement amount at that time.

Default in payment of outstanding salaries and amounts due to senior officers

On June 30, 2011 the Board of Directors acknowledged default in the payment of outstanding salaries due in the amount of $1,614,200 to two of its senior officers and acknowledged the provision in their employment agreements providing for the issuance of stock and/or stock options, or the provision of collateral to satisfy or secure the debt. On June 30, 2011, the Officer agreed to defer action, giving the Company a reasonable opportunity to register a new Stock Option Plan, failing which, the provision to provide collateral can be invoked.

Pending Litigation

On October 1, 2010, the Company received notice that they had been jointly named as a defendant along with our manufacturer in a statement of claim for breach of warranty and compensatory damages. The warranty claims are the responsibility of our manufacturer.

In July 2009 the Company sold a KDS machine to a Canadian customer who wished to process waste wood. When it was determined that the customer’s product was too wet for the machine to process efficiently, the customer demanded we make alterations and repairs to the machine, return of the full purchase price, plus pay them cash in the amount of $350,000 as damages. As additional damages they would keep and operate the machine.

As the Company views these claims as opportunistic and frivolous, we have not provided for any liability arising from these legal actions.