5. Commitments and Contingencies

9 Months Ended

Sep. 30, 2013

Notes

5. Commitments and Contingencies

5. Commitments and Contingencies

Encumbrance on Company Assets

On September 13, 2011 the Company entered into an agreement with the Internal Revenue Service (“IRS”) to pay a delinquent payroll tax obligation of approximately $88,700, including penalties and interest, at the rate of $5,000 per month.  The IRS has filed a tax lien against the Company in connection with this obligation. Effective January 2013, the monthly installment repayment was reduced to $2,500 from $5,000. The Company expects to use revenues from TDF production at its industrial site in Hutchins Texas to satisfy the remainder of this obligation.

Mechanic’s lien filed by a contractor for approximately $86,000 for services provided October, 2007 through April, 2008.  Lien expired in August 2011 under statute of limitations for such liens in Texas. The liability for this judgment is still included in accounts payable and accrued liabilities in the consolidated balance sheets

Litigation and Claims

The Company was named in a suit in the Colorado District Court for the 18th District (Arapahoe County) by a former employee alleging that the Company did not meet its obligation to issue shares to the employee.  On July 12, 2011 the Court granted a motion to enforce a settlement dated September 16, 2010. In accordance with the terms of the court order, the Company is obligated to make payments totaling approximately $104,700, including annual 6% interest.   An initial payment of $15,455 was made on July 22, 2011 and monthly payments of $3,000, including interest were due through November 2013.  A final payment of approximately $5,200 was to be due in December 2013. The Company had accrued this settlement. The settlement was renegotiated, and a final settlement payment was made in June 2013.  As a result, a gain on settlement of liability of $32,856 was recorded during the period ending September 30, 2013.

Environmental Liability

Our tire operations in Texas are subject to regulation by the TCEQ.  At September 30, 2013, the Company had approximately 11,600 tons of whole tires, partially shredded tires, tire chips and process waste stored onsite at the tire processing and storage facility. Through January 2011, we were able to dispose of this material at a municipal landfill site with minimal disposal and transportation costs. In February, 2011, the landfill transitioned to a project-based system where tire shreds are requested as                                                            needed, and the Company is now required to pay transportation and disposal costs in order to reduce its tire shred inventory. Consequently, the Company has since installed a tire derived fuel (TDF) line to create additional revenue from disposal of the tires and has been selling TDF since February 2012.    Based on these new circumstances, the Company has estimated a disposal cost of approximately $307,900 at September 30, 2013.  This amount has been included in accounts payable and accrued liabilities in the accompanying unaudited condensed consolidated balance sheets, and reflects a decrease of approximately $24,700 compared to December 31, 2012.  This amount has been recorded as environmental remediation income in the accompanying unaudited condensed consolidated statements of operations.

The Company’s registration with the TCEQ requires the Company to provide financial assurance (approximately $170,000 at June 30, 2012) for remediation in the event the Company liquidates and the facility closes.   The Company currently has $170,000 on deposit with the TCEQ, Consisting of $20,000 in cash provided by the company, and $150,000 in cash provided by Mr. Ruddy. The Company has no other asset retirement obligations.