Commitments and Contingent Liabilities

12 Months Ended

Dec. 31, 2015

Notes to Financial Statements

9. Commitments and Contingent Liabilities

Operating Leases

The Company is a party to a lease agreement dated June 15, 2011 for approximately 62,000 square feet of office and storage space with an entity.  On December 15, 2014, the Company entered into a sublease agreement for 34,106 square feet of warehouse space at the Company’s corporate headquarters in Florence, Kentucky. The sublease, which required rent of $9,948 per month, was terminated by the Company on the original expiration date of June 14, 2015.  On April 27, 2015, the Company entered in an amendment to the lease agreement which reduced the square feet of office and storage space to approximately 28,500 square feet, effective June 15, 2015.  Per the amendment, the monthly lease rate reduced to $7,770 in June 2015, $4,868 from July 2015 to December 2015 and $5,462 in year 2016.  The Company accounts for rent expense using the straight line method of accounting, deferring the difference between actual rent due and the straight line amount. The Company will amortize the balance of the remaining deferred rent payable related to the original lease over the remaining life of the amended lease term.  The lease expires on January 1, 2020 (as amended).  See Note 13.  Deferred rent payable of $25,852 and $36,053 as of December 31, 2015 and 2014, respectively, has been included in accrued expenses and other current liabilities on the consolidated balance sheets.

On June 7, 2013, Pagosa signed a three year lease for $1,000 per month to house an office, pharmacy as well as inventory and is located in Lawrenceburg, IN.  On July 8, 2013, the parties agreed to extend the lease for two additional years, such that the new termination date is now June 7, 2018.  On January 14, 2014, the Company closed Pagosa and vacated the Lawrenceburg facility. The Company is currently in discussions with the Landlord regarding termination of the lease related to the building.   The present value of the remaining lease payments of $49,614 is reflected as a component of accrued expenses and other liabilities on the consolidated financial statements as of December 31, 2015.

Future minimum payments, by year and in the aggregate, under operating leases as of December 31, 2015 are as follows:

For years ending December 31,	Amount
2016	$	77,544
2017		12,000
2018		5,000
Total future minimum lease payments	$	94,544

During the years ended December 31, 2015 and 2014, the Company recorded aggregate rent expense of $106,833 and $250,576, respectively.

Litigation

In the ordinary course of business, we may become subject to lawsuits and other claims and proceedings that might arise from litigation matters or regulatory audits. Such matters are subject to uncertainty and outcomes are often not predictable with assurance. Our management does not presently expect that any such matters will have a material adverse effect on the Company’s consolidated financial condition or consolidated results of operations. We are not currently involved in any pending or threatened material litigation or other material legal proceedings nor have we been made aware of any penalties from regulatory audits, except as described below.

On February 9, 2012, two of our former stockholders, Rock Castle Holdings, LLC and Jason Smith (collectively “Plaintiffs”), filed suit against us in the Hamilton County, Ohio Court of Common Pleas, alleging that we had breached the terms of certain incentive options we granted to the Plaintiffs in connection with our now-terminated oral consulting arrangements with the Plaintiffs, by among other things, refusing Plaintiffs’ purported exercise of options to purchase 233,332 shares of our Common Stock at an exercise price of $2.00 per share in December 2011.  Plaintiffs requested that, among other things, the court require us to permit the exercise of the 233,332 options.  Plaintiffs also provided an expert report indicating damages of $2.086 million.  On December 1, 2014, the Company executed a settlement agreement with the Plaintiff for $150,000 to be paid in unequal monthly installments through June 10, 2015.  The settlement amount was included in Selling, General and Administrative expense for the year ended December 31, 2014 and aggregate payments of $135,000 and $15,000 were made during the years ended December 31, 2015 and 2014, respectively.

On October 9, 2012, American Express Travel Related Services Company, Inc. brought legal action against the Company in the Boone County, Kentucky Circuit Court. The action seeks to recover the unpaid balance on a credit card account in the amount of $87,029, plus interest and costs.  The litigation was resolved on July 10, 2013 by a negotiated settlement.  The remaining balance of $2,029 is accrued in the accompanying consolidated balance sheet as of December 31, 2014 and was repaid in full in January 2015.

The Company was a party to a putative stockholder derivative action that was filed in the Court of Chancery of the State of Delaware on May 7, 2013 against certain directors and our chief executive officer and against us, as a nominal defendant.   The derivative complaint sought unspecified compensatory damages and other relief.  On January 8, 2014, in a stipulation and order of dismissal, the action was dismissed with prejudice to plaintiff, with each party bearing its own attorneys' fees and costs.

On May 15, 2013, a former consultant filed suit in Boone County, Kentucky Circuit Court alleging breach of contract and unjust enrichment for unpaid consulting fees and expenses of approximately $55,000.  On September 29, 2014, the Company executed a settlement agreement with the former consultant for $25,000 which was paid in monthly installments through March 1, 2015.  As of December 31, 2015, such settlement amount has been fully repaid.