COMMITMENTS AND CONTINGENCIES

12 Months Ended

Dec. 31, 2016

Commitments and Contingencies Disclosure [Abstract]

COMMITMENTS AND CONTINGENCIES

NOTE 10 - COMMITMENTS AND CONTINGENCIES

Commitments

We occupy our sole corporate facilities at 17912 Cowan, Suite A, Irvine, California, 92614 from ASP, an affiliate of our Company, for approximately $17,109 per month (including common area maintenance), consistent with the amount that is charged to ASP by the property owner. On February 5, 2015, ASP entered into a new five-year lease for the property with the owner beginning July 1, 2015 and subsequently amended to begin June 1, 2015. The lease was subsequently amended to increase the square footage under lease beginning in January 2016. The lease includes annual increases in the monthly lease payments of approximately 3% each year.

As of December 31, 2016, aggregate future minimum payments under the lease, including common area maintenance costs, are as follows:

2017	$	198,935
2018		204,585
2019		210,234
2020		106,530
Total	$	720,284

During the years ended December 31, 2016 and 2015, we incurred rent expense totaling $202,751 and $167,454, respectively. 

On February 3, 2017, the Company finalized and executed a Confirmation and Continuation Agreement (the “Agreement”) with kathy ireland WORLDWIDE, INC. (“kiWW“) (See Note 12). In order to settle all disputes under the License Agreement previously entered by the Company and kiWW, the Company agreed to, among other things, (i) issue to kiWW warrants in the form of a Common Stock Purchase Warrant (the “Warrant”) to acquire 3,000,000 shares of the Company’s common stock (the Warrant expires five years from the date of issuance and is exercisable for $0.01 per share, with a cash-less exercise option); and, (ii) issue to kiWW 500,000 restricted shares of the Company’s common stock, which will be subject to the same lock-up agreement placed on executives of the Company pursuant to the Company’s proposed secondary offering. In exchange, kiWW agreed that (i) the Company has performed, paid, and otherwise satisfied all of its obligations under the License Agreement for calendar year 2016; (ii) as of the end of 2016, the Company was not in breach of the License Agreement in any respect; and, (iii) the License Agreement is in full force and effect.

Legal Proceedings

On July 10, 2015, Stemage Skin Care, LLC (the “Plaintiff”) filed a complaint in the U.S. District Court for the Central District of California entitled “Stemage Skin Care LLC, a North Carolina limited liability company vs. NuGene International, Inc. et al.” (Civil Action No.8:15-cv-01078-AG-JCG). The complaint also names as defendants NuGene, Inc., Ali Kharazmi, Saeed Kharazmi, Kathy Ireland Worldwide, Stephen Roseberry, Steve Rosenblum and Erik Sterling. The complaint contains allegations of damage asserted to be grounded on: (i) copyright infringement; (ii) interference with contract; (iii) intentional interference with prospective economic advantage; (iv) negligent interference with prospective economic advantage; and (v) conspiracy. The complaint allegedly arises out of an August 20, 2012 agreement among the Plaintiff and kathy ireland inc. (“KI”) pursuant to which KI made Kathy Ireland available to perform “Ambassador Services” as defined within that agreement. That agreement effectively terminated in October 2014 and is the subject of a separate arbitration with KI and Kathy Ireland before the American Arbitration Association. On or around August 4, 2016 the Company settled the litigation. All parties to this litigation executed a settlement agreement resolving and waiving all claims, with a full dismissal, with prejudice, of the action. Pursuant to the settlement, in December 2016 the Company paid the total sum of $50,000 to the Plaintiff.

On July 31, 2015 Star Health & Beauty, LLC (“SH&B”) filed a complaint in the U.S. District Court for the Northern District of Georgia entitled “Star Health & Beauty, LLC vs. NuGene, Inc. and NuGene International, Inc. Defendants” (Case No. 1:15-cv-02634-CAP). The complaint alleges that our use of the NuGene name and trademark infringes on SH&B’s NUGEN name. SH&B seeks cancelation of our NuGene trademark, as well as unspecified monetary damages. In February, 2017 the parties agreed upon terms to settle the matter, subject to execution of a definitive written settlement agreement to include the following terms: (i) $60,000 to be paid by the Company to SH&B, in installments of $5,000 upon execution of a Settlement Agreement, $25,000 90-days thereafter, and $30,000 60-days thereafter; (ii) issuance of 125,000 shares of the Company’s common stock to SH&B upon execution of a Settlement Agreement; (iii) each side continues to use their names as the wish; (iv) full mutual releases of known and unknown claims; (v) each bears its respective cost of litigation; and, (vi) dismissal with prejudice of the action. The written Settlement Agreement is being finalized and should be executed within the next 30 days.

In May 2016, we were informed that the California Labor Commissioner scheduled a hearing in connection with two individuals that claimed our Company did not fulfill its obligations to pay a final paycheck. The two individuals are seeking back pay and penalties totaling approximately $31,000. A trial/hearing was scheduled for March 14, 2017 to decide each matter. In February 2017 we settled both matters. In exchange for a complete release from the first claimant, we will pay the first claimant a total of $9,000 in accordance with the following schedule: $4,500 on or before March 10, 2017; four additional payments of $1,000 each on the 15^th day of April, May, June, and July 2017; and, a final payment of $500 on or before the 15^th day of August. In exchange for a complete release from the second claimant, we will pay the second claimant a total of $4,000 on or before March 10, 2017.

On May 6, 2016, we were presented with a demand for payment of compensation for a former executive employee (the “Former Executive”) pursuant to his employment contract with our Company. The amount of the compensation claimed by the Former Executive totaled $49,998.The Company’s management is evaluating the merits of this matter. We believe that no amounts are due to the Former Executive and we have not accrued a liability as of December 31, 2016.

In December, 2016, we were informed by the four holders of our promissory notes totaling $480,000 (the “Holders”) that they would not honor their obligation to provide an additional $600,000 in similar financing. The Holders allege that certain breaches of the notes by the Company relieve them of their obligation. The Company firmly believes there is no merit whatsoever to the claims of the Holders. Rather than pursue litigation against the Holders, the Company has elected to pursue other sources of financing. However, should the Holders seek any acceleration or damages of any kind under the Notes, NuGene is committed to aggressively protect its rights, including though not limited to seeking damages from the Holders.

On February 24, 2017, we were informed that the Company will need to respond to a lawsuit filed by Habib American Bank (“Habib”) in the Superior Court of California, County of Orange. The action names Advanced Surgical Partners, LLC (“ASP”) as a defendant, as well as a number of additional named parties including though not limited to NuGene, Inc.; our Chairman of the Board, Mohammad Ali Kharazmi (“Ali”); and, our Acting Chief Financial Officer and Board Member, Mohammad Saeed Kharazmi (“Saeed”). The action is based on a purported default under a commercial loan from Habib to ASP on or around January, 2008 (the “Loan”). According to the complaint, ASP currently owes Habib approximately $2.7million under the Loan and that ASP has defaulted on the Loan. The Loan was arranged by Ali on behalf of ASP. Ali and Saeed are owners of, and control, ASP; they are also guarantors on the Loan. Additional family members of Ali and Saeed are alleged to be additional guarantors on the Loan, as are additional business entities owned by, or affiliated with, Ali and Saeed. The Loan is secured, in part, by the pledge of real estate owned by family members of Ali and Saeed (the “Pledged Real Estate”). A Deed of Trust was recorded by Habib against the Pledged Real Estate, and there appears to be more than sufficient equity in the Pledged Real Estate to pay off the Loan. NuGene is also alleged to be an additional guarantor on the Loan. A thorough search of NuGene records and files has failed to yield any documents or indication that NuGene was in fact a guarantor on the Loan. The Company has no documentation of the Loan or its purported guaranty, and there was no business relationship between ASP and NuGene which would suggest that a guaranty would have been provided. There was no prior knowledge by the Company of the existence of the Loan or the purported guaranty. Ali has steadfastly rejected the existence of the guaranty and has affirmatively assured the Company that he never authorized NuGene to guaranty the Loan, and that he never signed any documents on behalf of NuGene regarding the Loan. At this time, the Company intends to aggressively defend its rights and reject any status as a guarantor of the Loan. We believe that the Company’s risk and liability exposure under the Loan is minimal based upon (i) good faith and evidentiary defenses; and, (ii) the fact that there is more than adequate value/equity in the Pledged Real Estate to pay off the loan.

On April 4, 2017, Habib agreed to dismiss the Company from the litigation brought by Habib. A formal Settlement Agreement and Release has been executed by and between the Company and Habib (see Note 12). 

Other than that described above, we are not currently a party to any other material legal proceedings. We are not aware of any pending or threatened litigation against us that in our view would have a material adverse effect on our business, financial condition, liquidity, or operating results. However, legal claims are inherently uncertain, and we cannot assure you that we will not be adversely affected in the future by legal