Commitments and Contingent Liabilities

9 Months Ended

Sep. 30, 2016

Notes to Financial Statements

7. Commitments and Contingent Liabilities

Operating Leases

The Company leases approximately 28,500 square feet of office and storage space.  On March 15, 2016, the Company entered into an amendment of the lease agreement which extended the lease for an additional three years.  The amended monthly lease rate will be $5,462 in 2016, $6,649 in 2017, $6,886 in 2018 and $7,124 in 2019.  The lease expires on December 31, 2019.  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.  Deferred rent payable of $6,463 and $25,852 as of September 30, 2016 and December 31, 2015, respectively, has been included in accrued expenses and other current liabilities on the condensed consolidated balance sheets.

On June 7, 2013, Pagosa Health LLC ("Pagosa"), a former wholly-owned subsidiary of the Company, signed a three-year lease for $1,000 per month to house an office, pharmacy as well as inventory and is 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 its Lawrenceburg facility.  The present value of the remaining lease payments of $50,863 is reflected as a component of accrued expenses and other liabilities on the condensed consolidated financial statements as of September 30, 2016.

Future minimum payments, by year and in the aggregate, under operating leases as of September 30, 2016 are as follows:

For years ending December 31,	Amount
2016  (Remainder)	$	19,384
2017		91,783
2018		87,633
2019		85,482
Total future minimum lease payments	$	284,282

During the three and nine months ended September 30, 2016, the Company recorded aggregate rent expense of $18,147 and $56,985, respectively, and $23,536 and $85,151 (net of sub-lease) during the three and nine months ended September 30, 2015, respectively.

Employment Agreement

On May 9, 2016, the Company entered into an employment agreement (the "Employment Agreement") with Mr. Lalit Dhadphale.  The terms of the Employment Agreement include a term of two years beginning on January 1, 2016 with an extension provision, the titles and positions of Chief Executive Officer and President, an initial base salary of $175,000 per year, subject to certain bonus and severance provisions.  Mr. Dhadphale's agreement was bound by restrictive covenants regarding disclosure of confidential information, non-solicitation and employee non-competition.  See Note 9 – Board of Directors and Management Changes for additional information.

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.

On June 7, 2016, Shipping & Transit LLC filed suit against the Company for infringing on certain claims of patents held by Shipping & Transit.  On July 20, 2016, the Company entered into a Settlement, Release and License Agreement whereby the Company paid $11,000 for any past violations and future licensing of the patents.

On May 13, 2016, Taft Stettinius & Hollister, LLP (the "Plaintiff") filed a complaint in the Court of Common Pleas for Hamilton County, Ohio against Healthwarehouse.com, Inc. (the "Company").  The complaint alleges that the Plaintiff provided legal services to the Company beginning in April 2011 until January 2015 and billed the Company in the amount of $936,777, and for which the Company has not made payment. The complaint seeks damages against the Company in the amount of $936,777 plus interest.  The Company is in the process of investigating such claims and intends to defend the action vigorously.  The Company has accounted for this matter in accordance with ASC 450 ("Contingencies").