12. CONTINGENCIES	6 Months Ended
Jun. 30, 2012
Notes to Financial Statements
12. CONTINGENCIES	In connection with the acquisition of Skae Beverage International LLC (“Skae”) in 2008, the Company agreed to provide the former member of Skae, who is also the Company’s current Chief Executive Officer through February 14, 2012, with a three year earn-out arrangement. Under the terms of the earn-out arrangement, the Company can be required to pay an additional $4,776,100 to the owner of Skae if the acquired operations meet certain performance targets related to sales and gross profit. As of September 30, 2011 and December 31, 2010, the Company has accrued $260,000 and $535,000 respectively related to the achievement of the performance targets. Currently, the Company is unable to determine the likelihood that future performance targets will be met or estimate the future liability that will be incurred. In January 2011, the Company amended the earn-out agreement with the CEO; where by Mr. Skae forgave his 2010 earn-out of $325,000 which also reduced the intangible by the same amount. On January 29, 2009, the Company was notified that it was named as a defendant, along with 54 other defendants, in a class action lawsuit under California Proposition 65 for allegedly failing to disclose the amount of lead in one of its products. The Company has responded to discovery requests from the Attorney General of California. To date, no trial date has been set. The Company is currently investigating the merits of the allegation and is unable to determine the likelihood of an unfavorable outcome or a range of possible loss. This matter remains pending. On December 7, 2009, the Company received a demand notice for payment for $822,920 from the estate of a former owner of Nutritional Specialties, Inc. Without acknowledging liability, the Company offered to settle any claims against us in this matter for cash and restricted common stock. The Company's offer lapsed before it was accepted. The Company intends to continue to attempt to negotiate a settlement for this debt. The Company has accrued for this payment of $822,920 as of December 31, 2010 as a current portion of note payable. On July 7, 2010, the Company was served with a Complaint demanding payment of the remaining balance of a $1,200,000 note payable with a current balance of $822,920 from the estate of a former owner of Nutritional Specialties, Inc. The parties have attended mediation and the Company is hopeful that this may be amicably resolved.On April 9, 2012 the Company completed the sale its non-operating subsidiary Nutritional Specialties, Inc. (NSI) to Deep South Capital, LLC (DSCL). As part of the security purchase agreement, DSCL assumed this obligation and indemnified the Company for the note payable with a current balance of $822,920 from the estate of a former owner of Nutritional Specialties, Inc On March 12, 2010, the Company was notified that it was named as a defendant in lawsuit in the United States District Court, Eastern District of Texas, brought by Vitro Packaging de Mexico, SA de CV, the assignee of a former supplier. Vitro Packaging alleges the Company owed unpaid accounts payable and is seeking payment of approximately $345,000. The Company has entered into a Side Compromise Settlement Agreement, Indemnity and Release with Vitro Packaging De Mexico, S.A. DE C.V. with Vitro agreeing not to execute on an Agreed Final Judgment for $245,275 until after May 16, 2011, which the Company has not paid and is recorded as a current liability. On August 17, 2011, the judgment was recorded in the State of New Jersey. During September 2012, the Company re-initiated negotiations to settle this matter. In October 2012, Management negotiated an agreement with Vitro whereby the Company would pay $125,000 in three installments to settle all claims relating to the litigation. To date, no payments have been made under the agreement, however, Vitro and Company continue to discuss a beginning date for the installment payments. On July 11, 2011, the Company was served with a complaint from Bett-A-Way Traffic Systems, Inc. demanding payment of $90,928 in an accounts payable collection matter. The parties settled this matter on April 15, 2012 for a combination of stock and cash. The stock component has been paid and the cash component remains open. At March 2013, the parties continue to discuss payment of the cash component. On January 12, 2012, Key Equipment filed a complaint demanding payment of $81,943 and on August 29, 2012 a Final Judgment was attained. In November 2012, the parties agreed to a Stipulation of Settlement for $65,000 requiring an initial payment of $5,000 and subsequent monthly payments of $1,666 until fully retired. To date, the Company has not begun the payments as required under the Stipulation. On February 4, 2012, we were served with a complaint by Hartford Meir, Inc demanding payment of $160,009 in a collection matter regarding a trade receivable conveyed to them by Mode Transportation (with whom the Company originally incurred the debt). We have accrued for this payment of $136,920 as of December 31, 2011 as part of accounts payable. The Company reached a settlement agreement with this creditor which was consummated on July 18, 2012. The case has been dismissed. On January 9, 2013, we received a complaint from Stephen Gould Corporation alleging that we were in breach of contract and sought $47,587 for such breach. The Company’s counsel is reviewing the complaint. Purchase Order Financing On September 20, 2011 the Company entered into secured Purchase Order Financing agreements with certain suppliers for additional trade payable to produce and ship approximately $750,000 in orders to Company customers. The agreements are secured by certain future sales and inventory provided by the suppliers. The agreement provided for the repayment of $307,563 of outstanding accounts payable at September 30, 2011 and $443,000 in additional trade credit by the Company. The Company further agreed to segregate all cash proceeds from specific sales to certain customers (the “Customers”) to enable the Company to pay the suppliers. The Company entered into an Escrow Agreement with the Suppliers and an escrow agent for the purpose of establishing a segregated account controlled by the Escrow Agent to disburse the cash proceeds from such Customer accounts directly to each Supplier based upon a predetermined percentage. In connection with this facility, the Company also received consent from Secured Note holders to consent to (a) the Company entering into the Escrow Agreement with the Escrow Agent and the Suppliers for the benefit of each Supplier, and (b) consent to the Company’s segregation of proceeds from Customer accounts receivable to the Escrow Account and waive each such Secured Note holder’s security interest in and lien on all cash proceeds in the Escrow Account so long as the Escrow Agreement and the Escrow Account remains in place. As of June 30, 2012 the Company’s accounts payable to those Suppliers was $120,917 of which $0 represented Purchase Order Financing.

12. CONTINGENCIES

6 Months Ended

Jun. 30, 2012

In connection with the acquisition of Skae Beverage International LLC (“Skae”) in 2008, the Company agreed to provide the former member of Skae, who is also the Company’s current Chief Executive Officer through February 14, 2012, with a three year earn-out arrangement. Under the terms of the earn-out arrangement, the Company can be required to pay an additional $4,776,100 to the owner of Skae if the acquired operations meet certain performance targets related to sales and gross profit. As of September 30, 2011 and December 31, 2010, the Company has accrued $260,000 and $535,000 respectively related to the achievement of the performance targets. Currently, the Company is unable to determine the likelihood that future performance targets will be met or estimate the future liability that will be incurred. In January 2011, the Company amended the earn-out agreement with the CEO; where by Mr. Skae forgave his 2010 earn-out of $325,000 which also reduced the intangible by the same amount.

On January 29, 2009, the Company was notified that it was named as a defendant, along with 54 other defendants, in a class action lawsuit under California Proposition 65 for allegedly failing to disclose the amount of lead in one of its products. The Company has responded to discovery requests from the Attorney General of California. To date, no trial date has been set. The Company is currently investigating the merits of the allegation and is unable to determine the likelihood of an unfavorable outcome or a range of possible loss. This matter remains pending.

On December 7, 2009, the Company received a demand notice for payment for $822,920 from the estate of a former owner of Nutritional Specialties, Inc. Without acknowledging liability, the Company offered to settle any claims against us in this matter for cash and restricted common stock. The Company's offer lapsed before it was accepted. The Company intends to continue to attempt to negotiate a settlement for this debt. The Company has accrued for this payment of $822,920 as of December 31, 2010 as a current portion of note payable. On July 7, 2010, the Company was served with a Complaint demanding payment of the remaining balance of a $1,200,000 note payable with a current balance of $822,920 from the estate of a former owner of Nutritional Specialties, Inc. The parties have attended mediation and the Company is hopeful that this may be amicably resolved.On April 9, 2012 the Company completed the sale its non-operating subsidiary Nutritional Specialties, Inc. (NSI) to Deep South Capital, LLC (DSCL). As part of the security purchase agreement, DSCL assumed this obligation and indemnified the Company for the note payable with a current balance of $822,920 from the estate of a former owner of Nutritional Specialties, Inc

On March 12, 2010, the Company was notified that it was named as a defendant in lawsuit in the United States District Court, Eastern District of Texas, brought by Vitro Packaging de Mexico, SA de CV, the assignee of a former supplier. Vitro Packaging alleges the Company owed unpaid accounts payable and is seeking payment of approximately $345,000. The Company has entered into a Side Compromise Settlement Agreement, Indemnity and Release with Vitro Packaging De Mexico, S.A. DE C.V. with Vitro agreeing not to execute on an Agreed Final Judgment for $245,275 until after May 16, 2011, which the Company has not paid and is recorded as a current liability. On August 17, 2011, the judgment was recorded in the State of New Jersey. During September 2012, the Company re-initiated negotiations to settle this matter. In October 2012, Management negotiated an agreement with Vitro whereby the Company would pay $125,000 in three installments to settle all claims relating to the litigation. To date, no payments have been made under the agreement, however, Vitro and Company continue to discuss a beginning date for the installment payments.

On July 11, 2011, the Company was served with a complaint from Bett-A-Way Traffic Systems, Inc. demanding payment of $90,928 in an accounts payable collection matter. The parties settled this matter on April 15, 2012 for a combination of stock and cash. The stock component has been paid and the cash component remains open. At March 2013, the parties continue to discuss payment of the cash component.

On January 12, 2012, Key Equipment filed a complaint demanding payment of $81,943 and on August 29, 2012 a Final Judgment was attained. In November 2012, the parties agreed to a Stipulation of Settlement for $65,000 requiring an initial payment of $5,000 and subsequent monthly payments of $1,666 until fully retired. To date, the Company has not begun the payments as required under the Stipulation.

On February 4, 2012, we were served with a complaint by Hartford Meir, Inc demanding payment of $160,009 in a collection matter regarding a trade receivable conveyed to them by Mode Transportation (with whom the Company originally incurred the debt). We have accrued for this payment of $136,920 as of December 31, 2011 as part of accounts payable. The Company reached a settlement agreement with this creditor which was consummated on July 18, 2012. The case has been dismissed.

On January 9, 2013, we received a complaint from Stephen Gould Corporation alleging that we were in breach of contract and sought $47,587 for such breach. The Company’s counsel is reviewing the complaint.

Purchase Order Financing

On September 20, 2011 the Company entered into secured Purchase Order Financing agreements with certain suppliers for additional trade payable to produce and ship approximately $750,000 in orders to Company customers. The agreements are secured by certain future sales and inventory provided by the suppliers. The agreement provided for the repayment of $307,563 of outstanding accounts payable at September 30, 2011 and $443,000 in additional trade credit by the Company.

The Company further agreed to segregate all cash proceeds from specific sales to certain customers (the “Customers”) to enable the Company to pay the suppliers. The Company entered into an Escrow Agreement with the Suppliers and an escrow agent for the purpose of establishing a segregated account controlled by the Escrow Agent to disburse the cash proceeds from such Customer accounts directly to each Supplier based upon a predetermined percentage.

In connection with this facility, the Company also received consent from Secured Note holders to consent to (a) the Company entering into the Escrow Agreement with the Escrow Agent and the Suppliers for the benefit of each Supplier, and (b) consent to the Company’s segregation of proceeds from Customer accounts receivable to the Escrow Account and waive each such Secured Note holder’s security interest in and lien on all cash proceeds in the Escrow Account so long as the Escrow Agreement and the Escrow Account remains in place.

As of June 30, 2012 the Company’s accounts payable to those Suppliers was $120,917 of which $0 represented Purchase Order Financing.

- 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 460

-SubTopic 10

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-URI http://asc.fasb.org/extlink&oid=6398077&loc=d3e12565-110249

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Reference 3: http://www.xbrl.org/2003/role/presentationRef

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-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

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Reference 5: http://www.xbrl.org/2003/role/presentationRef

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-URI http://asc.fasb.org/extlink&oid=6877327&loc=d3e13212-122682

Reference 6: http://www.xbrl.org/2003/role/presentationRef

-Publisher FASB

-Name Accounting Standards Codification

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-URI http://asc.fasb.org/extlink&oid=6449706&loc=d3e16207-108621

Reference 7: http://www.xbrl.org/2003/role/presentationRef

-Publisher FASB

-Name Statement of Financial Accounting Standard (FAS)

-Number 5

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-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.

+ Details

New Leaf Brands, Inc. 10-Q