Note

Commitments and Contingencies

(a) Leases

Related Party Leases.

Warehouse and office facilities are leased from Vitamin Realty, which is

100%

owned by the Company’s chairman, Chief Executive Officer and major stockholder and certain of his family members, who are also executive officers and directors of the Company. On

January

2012,

MDC, a wholly-owned subsidiary of the Company, entered into a

second

amendment of lease (the “Second Lease Amendment”) with Vitamin Realty for its office and warehouse space in New Jersey increasing its rentable square footage from an aggregate of

74,898

square feet to

76,161

square feet and extending the expiration date to

January

31,

2026.

This Second Lease Amendment provides for minimum annual rental payments of

$533,

plus increases in real estate taxes and building operating expenses. On

May

19,

2014,

AgroLabs entered into an Amendment to the lease agreement entered into on

January

2012,

with Vitamin Realty for an additional

2,700

square feet of warehouse space in New Jersey, the term of which was to expire on

January

31,

2019

to extend the expiration date to

January

2024.

This additional lease provides for minimum lease payments of

$27

with annual increases plus the proportionate share of operating expenses.

Rent expense for the

three

and

six

months ended

December

31,

2016

and

2015

on these leases were

$214

and

$219

and

$411

and

$403,

respectively, and are included in both cost of sales and selling and administrative expenses in the accompanying Condensed Consolidated Statements of Operations. As of

December

31,

2016

and

June

30,

2016,

the Company had an outstanding obligation to Vitamin Realty of

$0.8

million and

$1.1

million, respectively, included in accounts payable, accrued expenses and other liabilities and long term debt in the accompanying Condensed Consolidated Balance Sheet.

Other Lease Commitments.

The Company has entered into certain non-cancelable operating lease agreements expiring up through

January

31,

2026,

related to office and warehouse space, equipment and vehicles (inclusive of the related party lease with Vitamin Realty).

The minimum rental commitments for long-term non-cancelable leases are as follows:

	Operating	Related Party
Year ending	Lease	Lease
June 30,	Commitment	Commitment	Total
2017, remaining	$ 29	$ 281	$ 310
2018	40	563	603
2019	27	563	590
2020	22	563	585
2021	21	563	584
2022	8	563	571
Thereafter	-	1,955	1,955
Total	$ 147	$ 5,051	$ 5,198

Total rent expense, including real estate taxes and maintenance charges, was approximately $

255

and

$259

and

$492

and

$485

for the

three

and

six

months ended

December

31,

2016

and

2015,

respectively. Rent expense is included in cost of sales and selling and administrative expenses in the accompanying Condensed Consolidated Statements of Operations.

(b) Legal Proceedings.

The Company is subject, from time to time, to claims by

third

parties under various legal theories. The defense of such claims, or any adverse outcome relating to any such claims, could have a material adverse effect on the Company

’s liquidity, financial condition and cash flows.

May

15,

2012,

Cedarburg Pharmaceuticals, Inc. ("Cedarburg") sent

the Company a letter (the "Demand Letter") setting forth a demand for indemnification under the Stock Purchase Agreement, dated

March

17,

2009

(the "Cedarburg SPA"), by and among Cedarburg, InB: Hauser Pharmaceutical Services, Inc., InB: Paxis Pharmaceuticals, Inc. and the Company. In the Demand Letter, Cedarburg demanded payment by the Company of

$0.6

million in respect of the Company's indemnification obligations under the Cedarburg SPA. In addition, in the Demand Letter, Cedarburg informed the Company that there are also environmental issues pending which

may

lead to additional costs to Cedarburg which will likely be in excess of

$0.3

million.

May

30,

2012,

the Company sent a letter responding to the Demand Letter and setting forth the Company’s position that it has no obligation to indemnify Cedarburg as demanded. On

June

18,

2012,

Cedarburg responded to the Company’s letter and, on

July

27,

2012,

the Company sent another letter to Cedarburg reiterating its position that the Company has no obligation to indemnify Cedarburg as demanded. On

December

18,

2012,

Cedarburg responded to the Company’s letter and, on

January

15,

2013,

the Company sent another letter to Cedarburg reiterating its position that the Company has no obligation to indemnify Cedarburg as demanded. As of

February

10,

2017,

the Company has not received any further communication from Cedarburg with respect to its demand for indemnification as set forth in the Demand Letter. The Company intends to vigorously contest Cedarburg's demand as set forth in the Demand Letter.