9. COMMITMENTS AND CONTINGENCIES

6 Months Ended

Jun. 30, 2011

Commitments and Contingencies Disclosure [Text Block]

9.	COMMITMENTS AND CONTINGENCIES

Operating Leases

The Company signed a revocable license agreement with Apex Telecom, LLC to rent office space at 13125 Danielson Street, Suite 101 Poway, CA, 92064. The license period is on a month to month basis beginning effective April 19, 2010 through March 31, 2011, subject to certain provisions, at a current rate of $3,230 per month. The Company extended the license period on a month to month basis at the same rate through June 30, 2011 with the landlord. This license agreement expired on June 30, 2011. The Company then signed a revocable license agreement with Pomerado Leasing No. 9 LP to rent office space at 13125 Danielson Street, Suite 104, Poway, CA 92064. The license period is on a month to month basis effective July 1, 2011, subject to certain provisions, at a current rate of $1,650 per month.

The Company leased a test facility in California for $300 per month under a lease which expired on October 31, 2008. Under a new lease effective November 1, 2008, the rent increased to $450 per month. The initial term of this lease is November 1, 2008 through October 31, 2009, with a one-year renewal option for each of the next five years which calls for no increase in rent during the renewal periods. The lease was renewed November 1, 2009. The company terminated this lease effective April 30, 2011.

Manufacturing Agreement

The East West accounts payable was $0 and $ 187,105 at June 30, 2011 and 2010 respectively and the Company had a commitment to pay East West $237,505 for cost related to the prospective manufacturing of inventory and tooling. The Company will record the $237,505 as part of its inventory, tooling and other expenses when legal title transfers from East West to the Company consistent with the Company’s policy for inventory as described in Note 2. On January 25, 2011, the Company received notice from East West that East West deems the Professional Services Agreement dated June 14, 2008 between the Company and East West to be “null and void” due to the Company’s past due amounts owed to East West and not being able to resolve the outstanding balance at this time.

Legal Matters

From time to time, claims are made against the Company in the ordinary course of business, which could result in litigation. Claims and associated litigation are subject to inherent uncertainties and unfavorable outcomes could occur, such as monetary damages, fines, penalties or injunctions prohibiting the Company from selling one or more products or engaging in other activities. The occurrence of an unfavorable outcome in any specific period could have a material adverse effect on the Company’s results of operations for that period or future periods.

On March 5, 2010, the Company received a summons to appear in the Supreme Court of the State of New York, County of New York, in a lawsuit filed by Crystal Research Associates, LLC (“Crystal”) alleging the Company failed to pay for services rendered by Crystal in the amount of $33,750, which is recorded in accounts payable as of June 30, 2011. On July 19, 2010 the Company received notice that it had defaulted in responding to the lawsuit.

On March 23, 2010, the Company received a Writ of Summons issued from the Superior Court of the State of New Hampshire, Rockingham County, to respond to a lawsuit filed by Alternative Energies, LLC (“Waterline”) relating to claims against the Company under its distribution contract with Waterline. The lawsuit does not specify an amount of damages claimed. As previously announced, the Company did receive a claim from Waterline seeking damages of approximately $250,000. The Company’s legal counsel responded to the Writ of Summons on May 4, 2010 and the Company is defending itself in the lawsuit. Waterline is currently a distributor of the Company’s products. The Company has not accrued any amount as it expects that it will not have any obligation to pay any amounts under this lawsuit.

Effective April 1, 2010, the Company completed a Settlement Agreement and Mutual Release with Kenneth O. Morgan pursuant to which the Company paid Kenneth O. Morgan the amount of $150,000 in settlement of the previously announced litigation between the parties. Pursuant to the terms of the Settlement Agreement, Kenneth O. Morgan agreed to dismiss his lawsuit against the Company and Scott Weinbrandt, and the Company agreed to dismiss its counterclaims against Kenneth O. Morgan.

On May 21, 2011, a complaint was filed by Ian Gardner, the Company’s former CEO and a director, against the Company and a director and officer of the Company asserting causes of action against the defendants for breach of certain contracts, breach of the covenants of good faith and fair dealing, fraud in the inducement, intentional and negligent misrepresentation, alter ego and declaratory relief. Mr. Gardner’s suit seeks approximately $150,000 in stated damages as well as additional unstated damages. The Company has accrued its anticipated obligation of approximately $95,000 in the financial statements as of December 31, 2010. The company has denied these allegations. On June 20, 2011 all parties to the lawsuit entered into a Settlement Agreement and Mutual General Release providing for the settlement of the litigation and mutual release of all claims whereby the Company agreed to reimburse Mr. Gardner $20,000 in legal costs, accrued in the financials as of June 30, 2011. Payment terms will be over a four month period, with an additional one time contingent payment of approximately $95,000 based on a successful financing for the Company of a minimum of $2,500,000.

On September 29, 2010, the Company received a summons to appear in the Superior Court in the State of California, County of San Diego, in a lawsuit filed by Gordon & Rees LLP alleging the Company failed to pay for legal services rendered in the amount of $107,110. The Company did not respond to the lawsuit within the 30 day period required to respond. On March 8, 2011, the Superior Court of California, County of San Diego granted Gordon & Rees LLP’s request for a default judgment in the amount of $110,938 in the previously announced lawsuit against the Company. The total outstanding balance is recorded in accounts payable as of June 30, 2011. On August 1, 2011, the Company received a Notice of Levy/Enforcement of Judgment from Gordon & Rees LLP in connection with their default judgment against the Company in the amount of $110,938 pursuant to which Gordon & Rees LLP seized $62,485 in cash from the Company’s bank account. The Company does not have the cash to pay the remainder amounts due from the judgment and expects the default judgment and Notice of Levy/Enforcement of Judgment to have a material adverse effect on the Company and its assets.

On October 6, 2010, the Company received notice issued from the Superior Court of the State of California, County of Orange, of a lawsuit filed by Bluewater Partners, S.A. (“Bluewater”) against the Company seeking damages in the amount of $647,254 relating to allegations that the Company breached its obligations to repay Bluewater under promissory notes issued by the Company. The Company has promissory notes due to Bluewater recorded in short term debt on the balance sheet in the amount of $348,164 (before accrued interest), but does not believe any additional amounts are owed to Bluewater. The Company does not have sufficient capital resources as of the date of this report to repay any amounts to Bluewater, and the Company has not responded to the lawsuit as of the date of this report. On March 2, 2011, the Company received notice that the Superior Court of the State of California, County of Orange (the “Court”) had granted Bluewater Partners, S.A. (“Bluewater”) request for a default judgment in the amount of $647,254 in the previously announced litigation involving the Bluewater promissory notes with the

Company. Management does not believe the Company owes any amounts over what has been recorded however, the Company does not have the cash to pay the judgment and expects the default judgment to have a material adverse effect on the Company and its assets.

On January 21, 2011, the Company received notice from legal counsel for Squar, Milner, Peterson, Miranda & Williamson, LLP (“Squar Milner”), the Company’s former independent auditor, that Squar Milner has requested a default judgment in its lawsuit against the Company. Squar Milner filed a lawsuit in Orange County Superior Court regarding the alleged unpaid balanced owed by the Company to Squar Milner in the amount of approximately $73,000. On May 2, 2011, the Company confirmed that the Orange County Superior Court has entered a default judgment against the Company. Any judgment against the Company resulting from the lawsuit would have a material adverse effect on the Company. The total outstanding balance is recorded in accounts payable as of June 30, 2011.

On March 18, 2011, the Company received notice that on March 11, 2011 East West Consulting, Ltd. and Steve Polaski (the “East West Parties”) filed a complaint in the Superior Court of the State of California, County of San Diego, against the Company and Kevin Claudio relating to a professional services agreement and employment agreement between the parties, and the conversion of certain accounts receivable into shares of Company stock. The East West Parties are seeking damages in the sum of over $4,000,000. Management does not believe the Company is obligated to East West for this claim, however any judgment against the Company resulting from the lawsuit would have a material adverse effect on the Company and its assets.

On July 19, 2011, the Company received notice that Scott Weinbrandt filed a lawsuit against the Company in the Superior Court of the State of California, County of San Diego (the “Court”), alleging breach of contract and seeking an unspecified amount of damages (but in excess of $25,000) against the Company relating to the employment agreement he had with the Company. Scott Weinbrandt is a former officer and director of the Company. As of June 30, 2011, the Company has included in accrued compensation portions owed to Mr. Weinbrandt. Any judgment against the Company resulting from the lawsuit could have a material adverse effect on the Company and its assets.

The Company is not presently a party to any other pending or threatened legal proceedings.

Executive Compensation

An employment agreement executed with the Company’s Chief Financial Officer (CFO) on April 22, 2010 calls for a base salary of $200,000 per annum May 1, 2010 through December 31, 2010; $225,000 per annum January 1, 2011 through December 31, 2011; and $250,000 per annum beginning January 1, 2012. During the period ended June 30, 2011, $100,000 of accrued officers' compensation was converted to shares of the Company’s convertible preferred stock.

- Definition

The entire disclosure for commitments and contingencies.

+ References

Reference 1: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 450
-SubTopic 20
-Section 50
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-URI http://asc.fasb.org/extlink&oid=6952336&loc=d3e14435-108349

Reference 2: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 460
-SubTopic 10
-Section 50
-Paragraph 8
-URI http://asc.fasb.org/extlink&oid=6398077&loc=d3e12565-110249

Reference 3: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name FASB Interpretation (FIN)
-Number 14
-Paragraph 3
-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 4: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 440
-SubTopic 10
-Section 50
-Paragraph 2
-URI http://asc.fasb.org/extlink&oid=6394976&loc=d3e25287-109308

Reference 5: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Statement of Financial Accounting Standard (FAS)
-Number 5
-Paragraph 9, 10, 11, 12
-LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy.

Reference 6: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 210
-SubTopic 10
-Section S99
-Paragraph 1
-Subparagraph (SX 210.5-02.25)
-URI http://asc.fasb.org/extlink&oid=6877327&loc=d3e13212-122682

Reference 7: http://www.xbrl.org/2003/role/presentationRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 825
-SubTopic 20
-Section 50
-Paragraph 1
-URI http://asc.fasb.org/extlink&oid=6449706&loc=d3e16207-108621

+ Details

Helix Wind, Corp. 10-Q