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Commitments and Contingencies
 12 Months Ended
Jun. 30, 2012
Commitments and Contingencies.  
Commitments and Contingencies

 

Note 14 — Commitments and Contingencies

 

We are subject to various claims and contingencies in the normal course of business.  In addition, from time to time, we receive communications from government or regulatory agencies concerning investigations or allegations of noncompliance with laws or regulations in jurisdiction in which we operate.  We disclose such matters if we believe it is reasonably possible that a future event or events will confirm a loss through impairment of an asset or the incurrence of a liability. We establish reserves if we believe it is probable that a future event or events will confirm a loss and we can reasonably estimate such loss.  Furthermore, we will disclose any matter that is unasserted if we consider it probable that a claim will be asserted and there is a reasonable possibility that the outcome will be unfavorable. We expense legal defense costs as they are incurred.

 

On March 29, 2012, the Fifth District Court of Richland Parish Louisiana dismissed the case against the Company and our wholly owned subsidiary NGS Sub Corp. brought by John C. McCarthy et. al. (the “plaintiffs”) in July 2011.  Plaintiffs alleged, among other claims, that we fraudulently and wrongfully purchased plaintiffs’ income royalty rights in the Delhi Field Unit in the Holt-Bryant Reservoir in May 2006.  The Court found that plaintiffs had “no cause of action” under Louisiana law.  The plaintiffs have filed an appeal.

 

On July 26, 2012, we agreed to settle a lawsuit filed by Frederick M. Garcia and Lydia Garcia in December 2010 in which the plaintiffs alleged failure to maintain the lease beyond its primary term due to no production.  Although we believed that the claims were without merit, we chose to settle for $67,000 in return for an extension of the lease, an amount less than our expected cost to prevail in court.

 

On August 23, 2012, we, and our wholly owned subsidiary NGS Sub Corp and Robert S. Herlin, our President, were served with a lawsuit filed in federal court by James H. and Kristy S. Jones (the “Jones lawsuit”).  The plaintiffs allege primarily that the defendants wrongfully purchased the plaintiffs’ 0.048119 overriding royalty interest in the Delhi Unit in January 2006 by failing to divulge the existence of an alleged previous agreement to develop the Delhi Field for EOR. We believe that the claims are without merit and are not timely, and we intend to vigorously defend against the claims. Counsel has advised us that, based on information developed to date, the risk of loss in this matter is remote.

 

Lease Commitments.  We have a non-cancelable operating lease for office space that expires on August 1, 2016. Future minimum lease commitments as of June 30, 2012 under this operating lease are as follows:

 

For the year ended June 30,

 

 

 

2013

 

159,011

 

2014

 

159,011

 

2015

 

159,011

 

2016

 

159,011

 

Thereafter

 

13,251

 

Total

 

$

649,295

 

 

Rent expense for the year ended June 30, 2012, 2011 and 2010 was $147,233, $146,263 and $138,823, respectively.

 

Employment Contracts.  We have entered into employment agreements with the Company’s three senior executives.  The employment contracts provide for a severance package for termination by the Company for any reason other than cause or permanent disability, or in the event of a constructive termination, that includes payment of base pay and certain medical and disability benefits from six months to a year after termination.  The total contingent obligation under the employment contracts as of June 30, 2012 is approximately $588,000.