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LEASE LIABILITIES
6 Months Ended
Mar. 31, 2022
Lease Liabilities  
LEASE LIABILITIES

NOTE 5 – LEASE LIABILITIES

 

Lease settlement liability

 

The Company leased its corporate office facility in Hoffman Estates, Illinois pursuant to a non-cancellable lease initiated in July 2016 and expiring February 28, 2024. The lease terms require a monthly payment of approximately $11,000. The Company vacated the facility in April 2020, in favor of its present facilities in Tucson AZ, which are provided by a shareholder on a rent-free basis. At the date of vacation, the Company had a remaining lease obligation of $631,587.

 

On or about June 29, 2020, the Company received notice that Hanover Hoffman Estates, LLC (“HHE”), filed case number 2020L006092 in the Circuit Court of Cook County alleging a failure to pay Base Rent and abandonment of certain office space in Hoffman Estates, Illinois subject to a Commercial Lease dated May 26, 2016 (the “HHE Litigation”). HHE sought at least $672,878 in base rent and other amounts under the lease, as well as treble damages from the Company’s ex-CEO and two past Directors who were serving on our Board as of the date of the lease. As of March 31, 2022, the Company has recorded the full amount of the judgement due.

 

On October 6, 2021, HHE and the Company settled the HHE Litigation pursuant to an agreement providing, among other things, that the Company agree to the entry of a final judgment order on the complaint in the amount of $725,795, which includes $657,194 in base rent awarded HHE by the Court on HHE’s Motion for Summary Judgment and the additional fees claimed by HHE and costs. HHE will forebear on the enforcement of the judgment and will provide the Company a satisfaction of the judgment upon the payment by the Company of $350,000, plus interest on the principal amount thereof outstanding from time to time at the rate of 5% per annum (the “Settlement Amount”), until the Settlement Amount is paid in full.

 

An initial payment of $125,000 was due January 1, 2022. The Company received a letter of default from HHE on January 20, 2022, which provided the Company 30 days to make the payment or HHE could seek collection of the Agreed Final Judgement Amount of $725,795. The Company made the payment of $125,000 on February 10, 2022. The balance of $225,000 will be paid over a five-year period beginning on January 1, 2023, as follows: January 1, 2023 – $15,000 plus accrued interest only; January 1, 2024 – $15,000 plus accrued interest only; January 1, 2025 – $45,000 plus accrued interest; January 1, 2026 – $75,000 plus accrued interest; and January 1, 2027 – $75,000 plus accrued interest.

 

As of September 30, 2021, the Company had recorded a lease settlement liability of $672,878. During the six months ended March 31, 2022, the Company made a payment of $125,000 towards the Settlement Amount and as of March 31, 2022, the Company has recorded a lease settlement liability of $547,878. The Company will adjust any remaining balance of the liability after it has completed the payment and satisfaction of the remaining $225,000 Settlement Amount.