Office Lease Obligations

In October 2013, the Company entered into a lease agreement for 6,362 square feet of commercial office space in Waukesha, Wisconsin for its corporate headquarters. The Waukesha lease expires in April 2021.

The Company presently leases approximately 14,000 square feet of office space in Milwaukee, Wisconsin for its operations facility. The Milwaukee lease expires in March 2020.  

In January 2016, the Company entered into a lease agreement for 2,237 square feet of commercial office space in Germantown, Maryland for its engineering employee’s in Maryland. The lease commitment expires in January 2017.

Commitments for minimum rentals under non-cancelable leases at September 30, 2016 are as follows:

Rental expenses charged to operations for the three and nine months ended September 30, 2016 and 2015 were $113,795 and $165,367, and $339,779 and $491,569, respectively. Rental income received for the three and nine months ended September 30, 2016 and 2015 was zero and $34,301 and zero and $102,904, respectively.

Litigation

The Company is subject to legal proceedings and claims which arise in the ordinary course of its business. Although occasional adverse decisions or settlements may occur, the Company believes that the final disposition of such matters should not have a material adverse effect on its financial position, results of operations or liquidity.

Sales Tax

During 2012, the Company engaged a sales tax consultant to assist in determining the extent of its potential sales tax exposure. Based upon this analysis, management determined the Company had probable exposure for certain unpaid obligations, including interest and penalty, of approximately $1,100,000 including and prior to the year ended December 31, 2011. The Company has approximately $243,000 and $230,000 accrued as of September 30, 2016 and December 31, 2015, respectively.

The Company continues to manage the liability by establishing voluntary disclosure agreements (VDAs) with the applicable states, which establishes a maximum look-back period and payment arrangements. However, if the aforementioned methods prove unsuccessful and the Company is examined or challenged by taxing authorities, there exists possible exposure of an additional $20,000, not including any applicable interest and penalties.

Prior to 2016, the Company successfully executed and paid in full VDAs in thirty one states totaling approximately $695,000 and is current with the subsequent filing requirements.

During the nine months ended September 30, 2016, the Company executed five VDA’s totaling approximately $70,000.

As of September 30, 2016, the state of Wisconsin is performing a sales and use tax audit covering the period from January 1, 2011 through December 31, 2015. The Company estimates the audit could result in approximately $100,000 in additional use tax and interest and have appropriately accrued this amount as of September 30, 2016.

The following table sets forth the change in the sales tax accrual as of September 30, 2016 and December 31, 2015: