8. Commitments and Contingencies

3 Months Ended

Mar. 31, 2013

Commitments And Contingencies

8. Commitments and Contingencies

(8)           Commitments and Contingencies

Legal Proceedings

From time to time we receive inquiries from federal, state, city and local government officials in the various jurisdictions in which we operate. These inquiries and investigations generally concern compliance with various city, county, state and/or federal regulations involving sales, representations made, customer service, refund policies, and marketing practices. We respond to these inquiries and have generally been successful in addressing the concerns of these persons and entities, without a formal complaint or charge being made, although there is often no formal closing of the inquiry or investigation. There can be no assurance that the ultimate resolution of these or other inquiries and investigations will not have a material adverse effect on our business or operations, or that a formal complaint will not be initiated. We also receive complaints and inquiries in the ordinary course of business from both customers and governmental and non-governmental bodies on behalf of customers, and in some cases these customer complaints have risen to the level of litigation. There can be no assurance that the ultimate resolution of these matters will not have a material adverse effect on our business or results of operations.

On February 8, 2013  the Company received a summons entitled TCU- Canyon Park, a Utah Limited Company, Plaintiff  (TCU) v. Crexendo, Inc. a Delaware Corporation F/K/A iMergent, Inc., Defendant. The Suit was filed in the Fourth Judicial District Court of Utah County, Provo Department. The Suit seeks unspecified damages against the company for vacating a lease premises.  The suit claims that the Company owes basic monthly rent of $112,454 from November 2012 through October 2013 together with other charges (including C.A.M., late fees, property damages, and interest and attorney fees). The Plaintiff alleges that the Company “quit” the premises in November 2012 and the lease terminates on October 2013.

The Company vacated the premises in November 2012, and alleges it did so due to violations of TCU. The Company had notified TCU that the premises were not habitable and that TCU had violated the Companies rights regarding possession and was therefore vacating the premises.

On February 26, 2013 the Company filed an answer, counterclaim and third party complaint. The action alleged in part that TCU breached its contract with the Company by TCU’s failure to provide continuing quiet use and peaceable enjoyment of the premises and common areas as required by the lease and the conditions of the lease. The Company further alleges in part that TCU failed to state a proper claim for relief, failed to mitigate its damages, failed to perform obligations under the law and the lease. The Company further alleges that the lease term ends four months earlier than is claimed by TCU.

The Company has filed a counter claim/ third party action seeking in part declaratory judgment to determine the end date of the lease. In addition, the Company is seeking Declaratory Relief on Use and Occupancy Restrictions included in the lease as well as TCU’s obligation to mitigate damages.

As of December 31, 2012, the Company has recorded a lease abandonment accrual in the amount of $1,393,042, based on unpaid and remaining contractual payments under the operating lease agreement.  On March 29, 2013, the Company entered into a settlement with TCU in the amount of $787,000.  As a result, the Company released $606,000 of the lease abandonment accrual during the three months ended March 31, 2013. The release of the lease accrual has been recorded in general and administrative expense.

We have recorded liabilities of approximately $202,000 as of March 31, 2013 and December 31, 2012, respectively, for estimated losses resulting from various legal proceedings in which we are engaged. Attorney’s fees associated with the various legal proceedings are expensed as incurred. We are also subject to various claims and legal proceedings covering matters that arise in the ordinary course of business. We believe that the resolution of these other cases will not have a material adverse effect on our business, financial position, or results of operations.