Commitments and Contingencies

9 Months Ended

Sep. 30, 2015

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies

5. Commitments and Contingencies

The Company leases offices and warehouse space through non-cancelable operating leases. Some of these leases contain escalation clauses, based on increases in property taxes and building operating costs, and renewal options ranging from one month to five years.

The Company also leases a fleet of vehicles classified as operating leases. The lease terms range from 36 to 60 months.

The following schedule represents the remaining future minimum payments of all leases as of September 30, 2015:

(in thousands)
2015	$	237
2016		773
2017		187
2018 and thereafter		99
	$	1,296

The Company incurred rent expense of $0.2 million and $0.4 million for the three months ended September 30, 2015 and 2014, respectively; and $0.8 million and $1.0 million for the nine months ended September 30, 2015 and 2014, respectively.

The Company is subject to risks and uncertainties in the normal course of business, including legal proceedings; governmental regulation, such as the interpretation of tax and labor laws; and the seasonal nature of its business due to weather-related factors. The Company has accrued for costs incurred with respect to identified risks and uncertainties based upon the facts and circumstances currently available.

From time to time, we are involved in legal proceedings that we consider to be in the normal course of business.

On July 9, 2014, the Company completed a PIPE offering of approximately $7.0 million at a price per share of $48.00 ($2.40 pre-reverse split). Subsequently, the Company’s stock price has declined to $1.18 as of September 30, 2015 and four of the investors that participated in the offering (out of approximately 20 total investors that participated in the offering) have asserted claims against the Company in three separate lawsuits alleging certain misrepresentations and omissions in the offering. Effective July 15, 2015 the Company settled with the four investors. The Company recorded a charge to operations of $0.5 million as of June 30, 2015, in recognition of the loss contingency for the July 2014 PIPE offering. That charge was equal to the retention under the Company’s 2014-15 Officers and Directors liability insurance policy as the Company expects the insurance policy will cover any future claims in excess of the retention limit.

On June 29, 2015, the Company received a subpoena from the U.S. Securities and Exchange Commission requesting the production of documents, records and information related to an investigation into the Company’s July  2014 PIPE offering. The Company believes that it has complied fully with all applicable laws, rules and regulations, and has been cooperating fully with the government’s investigation. The Company has established a special committee of the board of directors to review the facts and circumstances surrounding the PIPE offering and engaged outside counsel to assist it with its review. As a result, the Company has incurred related litigation expenses of $1.1 million which are shown on the Condensed Consolidated Statements of Operations for quarter ended September 30, 2015. These legal expenses contributed to the Company not meeting the EBITDA covenant under the SVB Loan. The Company and its legal advisors believe its expenses in responding to the U.S. Securities and Exchange Commission subpoena, which were incurred after June 30, 2015, should be fully paid by its insurance carrier as they are directly related to the July 2014 PIPE Offering and the Company reached its retention limit for that event during the second quarter of 2015. However, the insurance carrier has denied coverage for these expenses on the grounds that the U.S. Securities and Exchange Commission subpoena does not constitute a “claim” covered by the policy. The Company vigorously disputes the position of its insurance carrier and will continue to pursue coverage of its legal expenses in this matter. However, as any recovery the Company would receive in the future is a gain contingency, no assurances can be made that its insurance carrier will, ultimately pay for or reimburse these expenses, or any portion of these expenses.

At this time, the Company is unable to determine the potential impact, if any, that will result from this investigation. If the Company, its officers or its directors are deemed to have violated the securities laws, the U.S. Securities and Exchange Commission may seek various remedies against them.

An authorized integrator currently owing a net of approximately $0.6 million advised the Company on November 5, 2015 that its business will be reorganized due to financial difficulties and that they intend to repay the Company as originally agreed.  The Company has not recorded an allowance for doubtful accounts as it has not determined it is probable that a loss has occurred.