10.

OTHER LIABILITIES

Other liabilities of $358,235 at September 30, 2013, consists of $103,026 foreclosure liability, $240,000 short-term loans, $12,858 payable for assets purchased pursuant to Asset Purchase Agreement (Note 8. ASSET PURCHASE), and $2,351 on-line training liability. The foreclosure liability is the final court judgment amount, see Note 25. SUBSEQUENT EVENTS, which represents the shortfall between the mortgage and fees owed and value of the property foreclosed upon. The $240,000 short-term loans is comprised of four loans due on demand from unrelated parties. The loans have no other stated terms except one for $200,000 indicated it was for settlement of convertible debenture debt. As such the Company used the proceeds toward settlement of convertible debentures referenced in (13) of Note 12. CONVERTIBLE DEBENTURES.

Other liabilities of $170,827 at December 31, 2012, consists of $110,000 foreclosure liability, $37,000 short-term loans, $12,858 payable for assets purchased pursuant to Asset Purchase Agreement (Note 8. ASSET PURCHASE), $7,500 non-employee BOD fee, and $3,469 on-line training liability. The foreclosure liability is the difference between the court judgment amount, and amount the Company’s foreclosed property was purchased for by lender. The $37,000 short-term loans is comprised of three loans due on demand from unrelated parties.

Effective July 1, 2005, the Company began including on-line training certificates with all hookah units sold. The training certificates entitle the holder to an on-line interactive course at no additional charge to the holder. The number of on-line training certificates issued per unit is the same as the number of divers the unit as sold is designed to accommodate (i.e., a three diver unit configuration comes with three on-line training certificates). The certificates have an eighteen-month redemption life after which time they expire. The eighteen-month life of the certificates begins at the time the customer purchases the unit. The Company owes the on-line training vendor the agreed upon negotiated rate for all on-line certificates redeemed payable at the time of redemption. For certificates that expire without redemption, no amount is due the on-line training vendor.

The Company estimates the on-line training liability based on the historical redemption rate of approximately 10%. The Company continues to monitor and maintain a reserve for certificate redemption that approximates the historical redemption rate.