Annual report pursuant to Section 13 and 15(d)

Commitments and Contingencies

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Commitments and Contingencies
12 Months Ended
Dec. 31, 2015
Commitments and Contingencies [Text Block]

Note 7. Commitments and Contingencies

Operating Leases

On January 1, 2015 we entered into a lease for our old office space for a 38 month term, with a monthly rent payment of approximately $32,000 per month plus additional charges with no rent charged for the initial 2 months of the lease term. Total rent expense was approximately $0.4 million and $0.5 million for the years ended December 31, 2015 and 2014, respectively. On December 17, 2015 we entered into a sublease agreement for this prior office space with a third party with a lease term starting January 1, 2016 to February 28, 2018. The average monthly rent to be received under this sub-lease is approximately $15,000 per month, over the sub-lease term. The present value of the negative cash flows over this sub-lease term is approximately $433,000 and this amount plus a real estate commission paid to find the sub-lease tenant of approximately $20,000, resulted in a total $453,000 that was recognized as an abandonment loss. This total was recorded under general and administrative expenses for the year ended December 31, 2015. The long-term portion of deferred lease abandonment liability was $196,938 and the short-term portion of deferred lease abandonment liability of $236,529 was included in accounts payable and accrued liabilities at December 31, 2015.

On December 22, 2015 we entered into a lease for new office space for a 12 month term, with a monthly rent payment of approximately $6,500 per month plus additional charges.

As of December 31, 2015, future minimum lease payments required under the non-cancelable operating leases are as follows (rounded in millions):

Year ending December 31,   Amount  
    2016 $ 0.5  
    2017   0.4  
    2018   0.1  
     Total minimum payments required $ 1.0  

Minimum payments have not been reduced by minimum sublease rentals of $0.4 million due in the future under non-cancelable subleases.

Litigation

Our former Chief Financial Officer filed a complaint against the Company and Seth Grae, President and Chief Executive Officer, with the Circuit Court of Fairfax County, Virginia (the “Fairfax County Complaint”), and a separate complaint against the Company with the U.S. Occupational Safety and Health Administration (the “OSHA Complaint”) on March 9, 2015.

The Fairfax County Complaint contained two claims for damages. The first claim alleged that the Company and Mr. Grae made defamatory statements regarding the former Chief Financial Officer. The claim demands at least $1,000,000 in compensatory damages; costs, including reasonable fees for attorneys; and punitive damages of $1,000,000. The second claim alleges that the Company breached the former Chief Financial Officer’s employment contract by not paying the former Chief Financial Officer $15,507 for paid time off, and demands additional compensatory damages of at least $15,507.

In November 2015, subsequent to the above Fairfax County Complaint being filed, our legal counsel was notified by the attorney representing the former Chief Financial Officer that the former Chief Financial Officer has voluntarily decided to nonsuit the above Fairfax County Complaint on November 30, 2015. A nonsuit is essentially a voluntary dismissal of the case without prejudice, meaning that he is dismissing the case but that he can refile the suit at a later time. The statute for refiling this case is approximately 6 months from the filing date of this nonsuit.

The OSHA Complaint alleges that the Company unlawfully retaliated against the former Chief Financial Officer for challenging allegedly improper actions of the Company by making allegedly defamatory statements and terminating him from his employment with the Company. The former Chief Financial Officer’s demand for damages is for back pay, front pay, and special damages. The complaint did not specify the amount of damages sought.

The Company believes that all of the above claims by the former Chief Financial Officer are without merit and intends to vigorously defend itself. As of December 31, 2015, legal fees of $105,046 were incurred that are expected to be paid by the Company’s insurance carrier.