Quarterly report pursuant to Section 13 or 15(d)


6 Months Ended
Jun. 30, 2014
Commitments and Contingencies (See Note 12)  

Operating lease obligations. In February 2014, we entered into a lease (the “Lease”) for a new corporate office with an unrelated third party. The 5-year Lease is for a building approximately 24,000 square feet, which is comprised of approximately 16,000 square feet office space and 8,000 square feet warehouse. The property is located in Las Vegas, Nevada.


The initial term of the Lease commenced on April 1, 2014. We are obligated to pay approximately $153,000 in annual base rent in the first year, which shall increase by approximately 4% each year. We are also obligated to pay real estate taxes and other building operating costs. Subject to certain conditions, we have certain rights under the Lease, including rights of first offer to purchase the premises if the landlord elects to sell. We also have an option to extend the term of the Lease for two consecutive terms of three years each, at the then current fair market value rental rate determined in accordance with the terms of the Lease.


In connection with the Lease, the landlord has agreed to finance tenant improvements (“Tenant Improvements”) of $150,000. The base rent is increased by an amount sufficient to fully amortize the Tenant Improvements through the Lease term upon equal monthly payments of principal and interest, with interest imputed on the outstanding principal balance at the rate of 5.5% per annum. See Note 10.


Pursuant to the lease, we have the option to terminate the Lease effective at the end of the 36th month (“Termination Date”). We must deliver written notice of our intention to terminate the Lease to the landlord at least six months before the Termination Date. In the event we exercise our option to terminate, we shall pay the landlord a termination fee (the “Termination Fee”) equal to the sum of (i) all unamortized TI Allowance amounts, plus (ii) all unamortized leasing commissions paid by the landlord with respect to the lease, plus (iii) all unamortized rental abatement amounts.


For the period September 2010 to April 2014, we leased our offices from a related party that is connected with our CEO. The rental agreement was on a month-to-month basis and monthly rent payments were $10,359. Through April 2014, we rented various temporary storage facilities in the range of $150 to $460 a month. Our new corporate offices include approximately 8,000 square feet of warehouse space and as of May 2014, virtually all of our external storage rental contracts have been eliminated.


Total rent expense was $127,865 and $81,746 for the six months ended June 30, 2014 and 2013, respectively.


Future minimum lease payments are as follows:

Twelve Months Ended June 30,   Annual Obligation
  2015     $ 209,568  
  2016       218,304  
  2017       227,052  
  2018       235,788  
  2019       244,524  
       Total Estimated Lease Obligations     $ 1,135,236  


Legal proceedings. In the ordinary course of conducting our business, we are, from time to time, involved in various legal proceedings, administrative proceedings, regulatory government investigations and other matters, including those in which we are a plaintiff, that are complex in nature and have outcomes that are difficult to predict. In accordance with topic ASC Topic 450, we record accruals for such contingencies to the extent that we conclude that it is probable that a liability will be incurred and the amount of the related loss can be reasonably estimated. Our assessment of each matter may change based on future unexpected events. An unexpected adverse judgment in any pending litigation could cause a material impact on our business operations, intellectual property, results of operations or financial position. Unless otherwise expressly stated, we believe costs associated with litigation will not have a material impact on our financial position or liquidity, but may be material to the results of operations in any given period. We assume no obligation to update the status of pending litigation, except as may be required by applicable law, statute or regulation. For a complete description of the facts and circumstances surrounding material litigation to which we are a party, see Note 11 in Item 8. “Financial Statements and Supplementary Data” included in our annual report on Form 10-K for the year ended December 31, 2013. There are no material updates to matters previously reported on Form 10-K for the year ended December 31, 2013, except:


Bank of America action. In October 2012, we were served with a complaint by Bank of America (“BofA”) regarding a promissory note payable between GGLLC and BofA. The complaint, filed in the Eighth Judicial District Court in the State of Nevada, alleged that we received valuable assets from GGLLC in 2007 for little or no consideration. In the complaint, BofA sought to collect in full the outstanding principal and any accrued interest owed under the promissory note. On February 21, 2014, we reached a full settlement of all claims alleged by BofA. Pursuant to the settlement, BofA and we agreed to dismiss its legal actions against each other and enter into a mutual release of claims. Furthermore, we agreed to vacate the building located at 6980 O’Bannon Drive no later than April 30, 2014. The complaint was dismissed by the court on April 10, 2014 and we vacated the building as of April 18, 2014.