COMMITMENTS AND CONTINGENCIES

12 Months Ended

Dec. 31, 2016

Commitments and Contingencies Disclosure [Abstract]

COMMITMENTS AND CONTINGENCIES

16. COMMITMENTS AND CONTINGENCIES

Operating Leases –

Future minimum rental payments required under operating leases with remaining non-cancelable lease terms as of December 31, 2016, are as follows: 

More than 5 years	$	—
3-5 years		—
1-3 years		13,645
Within 1 year		81,301
Total	$	94,946

Total rental expense for all operating leases was:

	Year ended December 31, 2016			Year ended December 31, 2015
Minimum rental payments	$	70,597		$	68,315
Deferred rent charge		(7,522	)		(4,793	)
	$	63,077		$	63,522

Contingencies – Revenue based

As of December 31, 2016, the Company and its majority owned subsidiary, VVI, have remaining obligations, contingent upon receipt of certain revenues, to repay up to $165,788 and $199,334, respectively, in consideration of grant funding received in 1994 and 1995. The Company also is obligated to pay at the rate of 7.5% of its revenues, if any, from transferring rights to certain inventions supported by the grant funds. VVI is obligated to pay at rates of 1.5% of its net sales of supported products or 15% of its revenues from licensing supported products, if any.

Contingencies - The Company’s Distribution Rights, Marineo and Delta

On April 8, 2014, Mr. Giuseppe Marineo, Delta Research and Development (“Delta”), Mr. Marineo’s research company, and Delta International Services and Logistics (“DIS&L”), Delta’s commercial arm in which Mr. Marineo is the sole beneficiary of all proceeds as its founder and sole owner (collectively the “Group”), issued a press release (the “Group’s Press Release”) regarding the Company, stating that the Company did not have authority to sell, distribute and manufacture the Calmare Device as an exclusive agent of the Group. The Company issued a corporate response in a press release dated April 11, 2014 stating that the Group’s Press Release was inaccurate and has since been purged by the overseeing body of wire services.

This issue between the Company and the Group is over the validity of a 2012 Amendment to a Sales and Representation Agreement (the “Amendment”) which, if valid and enforceable, may have compromised its rights to sell, distribute and manufacture the Calmare Device as an exclusive agent of the Group in the global marketplace, especially in the European, Middle Eastern and North African (“EMENA”) territory which was responsible for approximately 70% of gross Calmare Device sales in 2011. However, the Company believes that the Amendment is neither valid nor enforceable as it was never duly signed or authorized and subsequently deemed null and void. Therefore, the parties’ rights are determined by an earlier agreement whereby the Company still possesses the authority to sell, distribute and manufacture Calmare Devices as a world-wide exclusive agent of the Group.

On April 16, 2014, counsel for the Group (“Group Counsel”) sent a cease and desist letter (“Cease and Desist Letter”) to the Company, requesting a confirmation that the Company would no longer hold itself out as an agent of the Group permitted to sell, distribute and manufacture Calmare Devices world-wide including the EMENA territory.

The Company responded on April 25, 2014 to the Cease and Desist Letter, disputing Group Counsel’s interpretation of the events surrounding the execution of the Amendment. At this time, the Company continues to work to find a reasonable and amicable resolution to the situation.

Contingencies – Litigation

Cases pending:

On August 22, 2014, GEOMC filed a complaint against the Company in the United States District Court for the District of Connecticut. The complaint alleges that the Company and GEOMC entered into a security agreement whereby in exchange for GEOMC’s sale and delivery of the Scrambler Therapy devices (the “Devices”), the Company would grant GEOMC a security interest in the Devices. Among other allegations, GEOMC claims that the Company has failed to comply with the terms of the security agreement and seeks an order to the Court to replevy the Devices or collect damages. The Company believes it has meritorious defenses to the allegations and the Company intends to vigorously defend against the litigation. On February 4, 2016, the Company announced that it is discussing a settlement with GEOMC, however, to date, no settlement has been reached.

On June 7, 2017, William Austin Lewis (“Lewis”), Lewis Asset Management (“Lewis Asset”), Lewis Opportunity Fund LP (“Lewis Opportunity Fund”), and William A. Lewis Defined Pension Plan and Trust (“Lewis Defined Pension Plan and Trust”) filed a complaint in the United States District Court for the Southern District of New York, against the Company, Conrad F. Mir (“Mir”), Peter Brennan (“Brennan”) Rustin Howard (“Howard”), and Carl O’Connell (“O’Connell”) (collectively, “Defendants”). The lawsuit alleges that Defendants violated federal securities laws and disseminated false and misleading statements concerning the financial status and contractual relations of the Company. Lewis, Lewis Opportunity Fund, and Lewis Defined Pension Plan and Trust are shareholders in the Company. The complaint seeks to recover unspecified compensatory and punitive damages. The Company believes it has meritorious defenses to the allegations and the Company intends to vigorously defend against the litigation.

On March 13, 2017, Bryan Clark filed a complaint against the Company, in the Circuit Court of the First Judicial Circuit in and for Escambia County, Florida. The complaint alleges that the Company is in breach of the terms of its promissory note with Mr. Clark. The Company is negotiating a settlement with Mr. Clark.

Cases settled:

On August 18, 2014, notice was issued to the Company that on June 23, 2014, Timothy Conley filed a complaint against the Company, in the United States District Court for the District of Rhode Island. The complaint alleged that the Company’s former acting interim chief executive, Johnnie Johnson, and Mr. Conley entered into an agreement whereby the Company agreed to make payments to Mr. Conley. Among other allegations, Mr. Conley claims that the Company’s nonpayment to Mr. Conley constitutes a breach of contract. On March 16, 2017, the Company entered into a Settlement, Compromise and Mutual Release Agreement with Mr. Conley. Under the terms of this agreement, the Company, without acknowledging any liability, agreed to a settlement payment to fully and completely resolve all claims from the Mr. Conley’s complaint. Each party has also released and discharged the other party of any liability or claims that the first party ever had, may have had, or in the future have against the other party. The Company has accrued the amount of the settlement in Accounts Payable and Accrued Liabilities as of December 31, 2016.

On June 6, 2016, notice was issued to the Company that on May 26, 2016, CME Acuity Rx, LLC (“CME Acuity”) filed a complaint against the Company, in the Superior Court of New Jersey. The complaint alleged the Company and CME Acuity entered into an agreement whereby the Company agreed to make payments to CME Acuity.in return for services to the Company. Among other allegations, CME Acuity claimed that the Company’s nonpayment to CME Acuity constituted a breach of contract. On February 27, 2017, the Company entered into a Settlement, Compromise and Mutual Release Agreement with CME Acuity. Under the terms of this Agreement, the Company, without acknowledging any liability, agreed to a settlement payment to fully and completely resolve all claims from the CME Acuity complaint. Each party has also released and discharged the other party of any liability or claims that the first party ever had, may have had, or in the future have against the other party. The Company has accrued the amount of the settlement in Accounts Payable as of December 31, 2016.

On November 9, 2016, the Company filed a complaint against Joel Bradus, an independent contractor for CME Acuity, in the Supreme Court of the State of New York, County of New York. The complaint alleges that Mr. Bradus interfered in the business relationship between the Company and CME Acuity, interfered in the business relationship between the Company and one of its major customers, and engaged in written and oral defamatory conduct against the Company. The Company was seeking actual, consequential, compensatory and punitive damages. On February 27, 2017, the Company entered into a Settlement, Compromise and Mutual Release Agreement with Mr. Bradus. Under the terms of this agreement, Mr. Bradus agrees to take no action which is intended, or would reasonably be expected, to cause material harm to the Company. Each party has also released and discharged the other party of any liability or claims that the first party ever had, may have had, or in the future have against the other party.

Other:

 On January 27, 2017, Christine Chansky (the “Plaintiff”) filed a complaint against the Company, in the United States District Court for the District of New Jersey. The complaint alleged wrongful termination and other claims. On May 25, 2017, the Court filed a 60-day order administratively terminating the action. The Company is discussing a settlement with Ms. Chansky, however, to date, no settlement has been reached.