COMMITMENTS AND CONTINGENCIES

12 Months Ended

Dec. 31, 2011

COMMITMENTS AND CONTINGENCIES [Text Block]

NOTE 12.  COMMITMENTS AND CONTINGENCIES

The Company has entered into various consulting agreements with outside consultants. However, certain of these agreements included additional compensation on the basis of performance. The consulting agreements are with key shareholders and advisers that are instrumental to the success of the Company and its development of its products.  The Company does not have a commitment and contingency liability.

On February 19, 2009, we received a letter from the U.S. Department of Labor (“DOL”), Occupational Safe and Health Administration ("OSHA"), notifying us that a complaint had been filed by Eric Schick, our former President, alleging that we had committed certain unlawful employment practices, including retaliatory termination of his employment for “whistle blowing,” in connection with his separation from the Company in October 2008.  On January 19, 2011, OSHA delivered its preliminary report determining that there was reasonable cause to believe that the Company and our former Chief Executive Officer violated Section 806 of the Corporate and Criminal Fraud Accountability Act of 2002, Title VIII of the Sarbanes-Oxley Act, and that the reinstatement of our former President was warranted.  On February 3, 2012, the DOL’s Office of Administrative Law Judge issued on order denying the Company’s motion to stay OSHA’s preliminary order of reinstatement, thereby ordering reinstatement of Schick to the position of President.  While the Company is appealing the DOL’s order, in the event the Company is not successful, the Company could be harmed.

OSHA has made a preliminary assessment of damages, which it estimates at approximately $440,000; however, the damages alleged by Mr. Schick exceed this amount.  The Company intends to vigorously defend against the complaint, which defense will require substantial financial and human resources (including significant amounts of our management's time and attention), which in turn could materially and adversely affect our business, operations and financial condition.  In addition, if there was an ultimate finding in favor of Mr. Schick on his allegations, we may be required to pay Mr. Schick substantial amounts and incur other potential penalties. Any such payments could materially and adversely affect our financial condition, business and prospects, and could prevent us from executing our business plan as currently contemplated.

We established a litigation reserve of $250,000 in connection with the above referenced DOL matter as of December 31, 2011 in anticipation of further litigation and potential settlement costs associated with resolving such matter.  In the event there is an ultimate finding in favor of Mr. Schick, the ultimate impact on our financial statements may exceed the amount of the reserve, and such amount may be material.