The Company leases its corporate office space and the space for each of the company-owned or managed clinics in the portfolio.

 

Total rent expense for the three and six months ended June 30, 2016 was $854,516 and $1,607,011, respectively. Total rent expense for the three and six months ended June 30, 2015 was $236,137 and $354,617, respectively.

 

Future minimum annual lease payments are as follows:

 

2016 (remaining)		$	1,662,566
2017			3,345,151
2018			2,763,018
2019			2,426,739
2020			2,163,963
Thereafter			10,133,376
		$	22,494,813

 

In the normal course of business, the Company is party to litigation from time to time.

 

On July 7, 2015, a group of six franchisees, who formerly owned a total of 8 franchise licenses that were terminated by the Company due to defaults in performance, commenced a collective arbitration proceeding before the American Arbitration Association in San Diego, California. The claimants’ demand for arbitration asserts claims for breach of contract, promissory fraud, negligent misrepresentation, breach of the implied covenant of good faith and fair dealing, wrongful termination of franchise agreements and “wrongful competition” pursuant to unspecified state business practices, unfair competition and franchise statutes. The claimants sought, but appear to have abandoned, “a preliminary and permanent injunction prohibiting the Company from seeking to operate corporate clinics within 25 miles of any franchise clinic.” Although commenced in California, the arbitration proceeding was moved to Phoenix, Arizona, pursuant to the franchise agreements in dispute, which include clauses that make it mandatory for any arbitration proceeding to be conducted in this locale. The Company has also asserted counterclaims against each of the claimants for unpaid termination fees due to the premature termination of their licenses. In April 2016, one of the franchisee’s claims was voluntarily dismissed, thereby leaving a total of five claimants with a collective total of 16 former licenses remaining as part of the arbitration proceeding. On August 8, 2016, the claimants filed a Second Amended Addendum to Demand in which they seek, among other things, rescission of all franchise investment- related fees and alleged losses on behalf of all remaining claimants. There is an evidentiary hearing presently set to commence on December 5, 2016. The Company is vigorously defending the arbitration proceeding.