Commitments and Contingent Liabilities

12 Months Ended

Dec. 31, 2016

Notes to Financial Statements

9. Commitments and Contingent Liabilities

Operating Leases

The Company entered a lease agreement dated June 15, 2011, as amended, for approximately 62,000 square feet of office and storage space and for its Company's corporate headquarters in Florence, Kentucky.  On December 15, 2014, the Company agreed to sublease 34,106 square feet of the space for $9,948 per month and the sublease was subsequently terminated by the Company on June 14, 2015.  On April 27, 2015, the Company entered in an amendment to the lease agreement which reduced its square footage to approximately 28,500 square feet effective June 15, 2015.  The amendment reduced the monthly rent to $4,868 for July 2015 to December 2015 and $5,462 per month in 2016. On March 15, 2016, the Company entered into an amendment of the lease agreement which extended the lease for an additional three years to December 31, 2019.  The amended monthly lease rate will be $6,649 in 2017, $6,886 in 2018 and $7,124 in 2019. 

The Company accounts for rent expense using the straight-line method of accounting, deferring the difference between actual rent paid and the straight-line amount. The Company amortizes the balance of the remaining deferred rent payable over the remaining life of the amended lease term.  Deferred rent payable of $0 and $25,852 as of December 31, 2016 and 2015, respectively, has been included in accrued expenses and other current liabilities on the consolidated balance sheets.

On June 7, 2013, a subsidiary of the Company which was liquidated in 2014, signed a three-year lease for $1,000 per month to house an office, pharmacy and inventory located in Lawrenceburg, Indiana.  On July 8, 2013, the parties agreed to extend the lease for two additional years to a new termination date of June 7, 2018.  In January 2014, the Company closed and vacated the Lawrenceburg facility.  The present value of the remaining lease payments of $51,181 is reflected as a component of accrued expenses and other liabilities on the consolidated balance sheet as of December 31, 2016 and therefore excluded from the table below.

Future minimum payments under our non-cancelable operating lease as of December 31, 2016 are as follows:

Years ending December 31,	Amount
2017	$	79,783
2018		82,633
2019		85,482
Total minimum lease payments	$	247,898

During the years ended December 31, 2016 and 2015, the Company recorded aggregate rent expense of $69,819 and $106,833, respectively.

Employment Agreement

On May 9, 2016, the Company entered into an employment agreement (the "Employment Agreement") with Mr. Lalit Dhadphale.  The terms of the Employment Agreement include a term of two years beginning on January 1, 2016 with an extension provision, the titles and positions of Chief Executive Officer and President, an initial base salary of $175,000 per year, subject to certain bonus and severance provisions.  Mr. Dhadphale's agreement was bound by restrictive covenants regarding disclosure of confidential information, non-solicitation and employee non-competition.  See Notes 7 and 13 for additional information.

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 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 when such settlement amount had been fully repaid.

On June 7, 2016, Shipping & Transit LLC filed suit against the Company for infringing on certain claims of patents held by Shipping & Transit.  On July 20, 2016, the Company entered into a Settlement, Release and License Agreement whereby the Company paid $11,000 for any past violations and future licensing of the patents.

On May 13, 2016, Taft Stettinius & Hollister, LLP (the "Plaintiff") filed a complaint in the Court of Common Pleas for Hamilton County, Ohio against the Company.  The complaint asserts that the Plaintiff provided legal services to the Company beginning in April 2011 until January 2015 and billed the Company $936,777 which the Company has not made payment. The complaint seeks damages against the Company in the amount of $936,777 plus interest.  The Company is in the process of investigating such claims and has entered negotiations with the Plaintiff.  The Company has accounted for this matter in accordance with ASC 450 ("Contingencies").

Also see Note 13 – Subsequent Events for additional information.