Commitments and Contingent Liabilities

9 Months Ended

Sep. 30, 2015

Notes to Financial Statements

7. Commitments and Contingent Liabilities

Operating Leases

The Company is a party to a lease agreement dated June 15, 2011 for approximately 62,000 square feet of office and storage space with an entity.  On December 15, 2014, the Company entered into a sublease agreement for 34,106 square feet of warehouse space at the Company’s corporate headquarters in Florence, Kentucky. The sublease, which required rent of $9,948 per month, was terminated by the Company on the original expiration date of June 14, 2015.  On April 27, 2015, the Company entered in an amendment to the lease agreement which reduced the square feet of office and storage space to approximately 28,500 square feet, effective June 15, 2015.  Per the amendment, the monthly lease rate reduced to $7,770 in June 2015, $4,868 for the remainder of 2015 and $5,462 in year 2016.  The Company accounts for rent expense using the straight line method of accounting, deferring the difference between actual rent due and the straight line amount. The Company will amortize the balance of the remaining deferred rent payable related to the original lease over the remaining life of the amended lease term.  The lease expires on January 1, 2017. Deferred rent payable of $28,402 and $36,053 as of September 30, 2015 and December 31, 2014, respectively, has been included in accrued expenses and other current liabilities on the condensed consolidated balance sheets.

On June 7, 2013, Pagosa signed a three year lease for $1,000 per month to house an office, pharmacy as well as inventory and is located in Lawrenceburg, IN.  On July 8, 2013, the parties agreed to extend the lease for two additional years, such that the new termination date is now June 7, 2018.  On January 14, 2014, the Company closed Pagosa and vacated the Lawrenceburg facility. The Company is currently in discussions with the Landlord regarding termination of the lease related to the building.   The present value of the remaining lease payments of $49,102 is reflected as a component of accrued expenses and other liabilities on the condensed consolidated financial statements as of September 30, 2015.

Future minimum payments, by year and in the aggregate, under operating leases as of September 30, 2015 are as follows:

For years ending December 31,	Amount
2015	$	17,604
2016		77,544
2017		12,000
2018		5,000
Total future minimum lease payments	$	112,148

During the three and nine months ended September 30, 2015, the Company recorded aggregate rent expense of $23,536 and $85,151, respectively, and $66,820 and $210,140 during the three and nine months ended September 30, 2014, respectively.

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 condensed consolidated financial condition or condensed 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.