COMMITMENTS AND CONTINGENCIES

3 Months Ended

Mar. 31, 2013

Commitments and Contingencies Disclosure [Abstract]

Legal Matters and Contingencies [Text Block]

16. COMMITMENTS AND CONTINGENCIES

On March 14, 2013, the Company received notice from The Depository Trust Company (“DTC”) that they have imposed a restriction on physical deposit and Deposit/Withdrawal At Custodian (“DWAC”) electronic deposit transactions, referred to as a “Deposit Chill”. The Deposit Chill was issued by DTC as a result large deposits of shares, or 243,782,328 shares, of the Company’s common stock during the period from August 24, 2011 to November 6, 2012. Since this was a substantial percentage of the Company’s outstanding float deposited at DTC during the period, the matter resulted in the Deposit Chill until DTC is assured that the shares deposited were tradeable without restriction under the Securities Act of 1933. The Company believes it is in compliance with all requirements DTC seeks for address. As a result, the Company intends to issue “objection” to the Deposit Chill and engage independent Counsel as condition of DTC to provide legal opinion that all shares deposited were tradeable without restriction under the Securities Act of 1933 in attempt to lift the Deposit Chill as soon as possible.

On December 18, 2012, Undersea Breathing Systems, Inc. (“UBS”) filed an amended complaint against the Company compelling purchase of Medal Model No. 4241 membranes or equivalent pursuant to pricing agreement in 2011. UBS is the holder of the convertible debenture referenced in Note 11. CONVERTIBLE DEBENTURES Ref (3). Under the complaint, UBS asserts the Company was to purchase no less than 24 membranes from the company per year for $2,000 and $1,000, cash and Company stock, respectively, per membrane. The Company took delivery, paid cash, and issued stock for 14 Medal Model No 4241 membranes pursuant to the stated pricing in 2011, plus issued an additional $24,000 stock toward future purchases of 24 membranes. However, the Company has not purchased or taken delivery of additional membranes. At the same time the stock was issued the Company granted UBS a convertible debenture of $76,000 and reduced its balance to $48,000 when the Company paid $28,000 cash and took delivery of the 14 membranes. Therefore, UBS currently has $24,000 worth of stock and a $48,000 convertible debenture for which the Company took no membrane deliveries. If judgment or settlement were to go in favor of UBS, there would be no financial impact to the statement of operations or net impact on financial position. This is because there would be corresponding decreases in amounts to convertible debenture, prepaid inventory, cash, and increase in inventory, all netting to zero. In addition any future compelled purchases would result in a decrease in cash with corresponding increase in inventory. As a result, no accrual is warranted, and the Company will await legal advisement and decision on the matter.

On or about May 3, 2012, the Company received notice of filing of an action for breach of contract, conspiracy to commit securities fraud and injunctive relief against the Company and the first party named in Note 11. CONVERTIBLE DEBENTURES Ref (1). The Plaintiff, Eventus Capital, Inc., is the second party referenced in Note 11. CONVERTIBLE DEBENTURES, Ref (1) who purchased the original debenture from the first party. The net book value, excluding interest, on the debenture as of December 31, 2012 was approximately $12,700. The amount named in the original lawsuit was “damages in excess of $15,000”, plus other fees. On July 16, 2012, the Palm Beach County Court issued an Order on the Company’s Motion to dismiss this complaint. The motion was granted without prejudice to allow the plaintiff 15 days to file an amended complaint with substantiating documentation. The plaintiff amended its complaint as required, asserted it incurred a loss of seven hundred thirty-five thousand six hundred and sixteen dollars in damages. The other Defendant in the action has asserted counter and third party claims against the plaintiff. Per the opinion of the Company’s legal counsel, the plaintiff has failed to establish any legal or factual basis for claim, and judgment or settlement against the Company is not probable.

On or about April 27, 2012, the Company received a default notice from Branch Banking Trust (“BBT”) under its Forbearance Agreement on the mortgage underlying the Company’s real estate. The Company subsequently received judgment of foreclosure, as the 17th Judicial Circuit of the Circuit Court of Broward County awarded BBT a final judgment in the amount of $1,123,269. On August 16, 2012 the Company’s real estate foreclosed upon was sold through a court ordered auction. At the foreclosure sale, the lender was highest bidder with a bid of $1,300. On December 14, 2012, the lender served the Company with Notice of Final Judgment of Foreclosure. Per the Notice, the lender seeks Final Judgment including post-judgment interest and costs through date of sale of $1,127,643 plus post-judgment interest and related expenses. The lender asserts the fair market value of the property on the date of sale was $1,030,000 and is seeking final judgment against the Company for the shortfall between the Final Judgment amount and the fair market value of the property, or approximately $100,000 plus post-judgment interest and related expenses. Until the entire final judgment amount is satisfied, there can be no assurance that BBT will not take possession of certain of the Company’s assets to satisfy the judgment. On or about February 11, 2013, the Company extended an offer to settle Final Judgment and awaits response on its offer.

On November 1, 2012, the Company entered into a one year lease on the real estate foreclosed upon, which the Company continues to occupy as it manufacturing facility and headquarters. The terms of the lease are base rent of $3,750 plus sales tax, and either party can cancel the lease with 90 days written notice.