17. COMMITMENTS AND CONTINGENCIES

SALE AND LEASEBACK TRANSACTIONS

During the fiscal year ended June 30, 2014, the Company and a third party finance company, entered into the six Sale Leaseback Agreements pursuant to which the third-party finance company purchased ePort equipment owned by the Company and used by the Company in its JumpStart Program. As of June 30, 2014, the third-party finance company completed the purchase of the ePort equipment under the first two of the Sale Leaseback Agreements. During the first quarter of 2015, the third-party finance company completed the purchase of the ePort equipment included in the remaining four of the Sale Leaseback Agreements.

Rent expense under the Sale Leaseback Agreements was approximately $1.5 million, $2.6 million, and $2.5 million during the years ended June 30, 2017, 2016, and 2015, respectively.

Upon the completion of the sales, the Company computed a total gain on the sale of its ePort equipment as follows:


	Year ended June 30,
($ in thousands)	2015

Rental equipment sold, cost	$	3,873
Rental equipment sold, accumulated depreciation upon sale		(331)
Rental equipment sold, net book value		3,542
Proceeds from sale		4,994
Gain on sale of rental equipment	$	1,452

In accordance with the FASB topic ASC 840‑40, “Sale Leaseback Transactions”, any gain shall be deferred and shall be amortized in proportion to the related gross rental charged to expense over the lease term. As such, the computed gain on the sale was being recognized ratably over the 36 month lease term and charged as a reduction to the Company’s JumpStart rent expense included in costs of services in the Company’s Consolidated Statement of Operations.

During the fiscal year ended June 30, 2017, the Company extended the termination date for each of the six Sales Leaseback Agreements with the third party financing company for an additional year and the extension will also result in the transfer of ownership of the leased assets to the Company at the end of the new term. As a result of the new provision for ownership transfer at the end of the lease, the Sale Leaseback Agreements previously considered to be operating leases are classified as capital leases at June 30, 2017 and the remaining deferred gain at the time of the extension will be amortized ratably over the remaining estimated useful lives of the related property and equipment, through the fourth quarter of 2019.

At June 30, 2017 and 2016 the deferred gain was as follows:


	Year ended June 30,
($ in thousands)	2017		2016

Beginning balance	$	900	$	1,760
Recognition of deferred gain		(561)		(860)
Ending balance		339		900
Less current portion		239		860
Non-current portion of deferred gain	$	100	$	40

OTHER LEASES

Other lease commitments include leases for its operations from various facilities. The Company leases space located in Malvern, Pennsylvania for its principal executive office and used for general administrative functions, sales activities, product development, and customer support. On December 1, 2016, pursuant to a Third Amendment to Office Space Lease entered into in April 2016, the Company relocated from the approximately 17,249 square feet of premises that it previously leased on the first floor of the building in Malvern, Pennsylvania, to 17,689 square feet of space on the third floor of such building. The Third Amendment provided that the term of the Lease would expire seven years following December 1, 2016, and granted to the Company the option to extend the term of the Lease for an additional five-year period, and provided certain rights of first offer on additional space located on the third floor of the building. The straight-line rent expense for this office was approximately $38 thousand per month. Commencing in June 2016, and pursuant to a Fourth Amendment to Office Space Lease, the Company has been temporarily leasing an additional 1,097 square feet of space in the building on month-to-month basis at a monthly rent of $1,120. Pursuant to the rights of first offer set forth in the lease, commencing on August 7, 2017, and as provided in the Fifth Amendment to Office Space Lease, the Company expanded its leased space to a total of 23,138 square feet. The Company’s monthly base rent is now approximately $47 thousand, and will increase each year up to a maximum monthly base rent of approximately $53 thousand during the remaining term of the lease. The lease expires on November 30, 2023. The Company classifies this lease as an operating lease.

The Company leases space in Malvern, Pennsylvania for its product warehousing and shipping support. In March 2016, the Company extended its lease from March 1, 2016 through February 29, 2019. The lease includes monthly rental payments of $5 thousand. Beginning in March 2016 the straight-line rent expense for this operations site is approximately $5 thousand per month for the duration of the lease period. The Company classifies this lease as an operating lease.

The Company leases space in Portland, Oregon related to its VendScreen acquisition. The current lease commenced on October 17, 2016, and will terminate on December 31, 2019. The leased premises consists of approximately 5,362 square feet of rentable space. The lease includes monthly rental payments of approximately $11 thousand through December 31, 2019. The Company classifies this lease as an operating lease.

Rent expense under other operating leases was approximately $729 thousand, $479 thousand and $354 thousand during the years ended June 30, 2017, 2016, and 2015, respectively.

SUMMARY OF LEASE OBLIGATIONS

Future minimum lease payments for fiscal years subsequent to June 30, 2017 under non-cancellable operating leases and capital leases are as follows:


	Operating		Capital
($ in thousands)	Leases		Leases

2018	$	628	$	2,996
2019		621		217
2020		523		21
2021		465		19
2022		474		10
Thereafter		685		—
Total minimum lease payments	$	3,396	$	3,263
Less Amount Representing interest				198
Present Value of net minimum lease payments				3,065
Less Current obligations under capital leases				2,819
Obligations under capital leases, less current portion			$	246

LITIGATION

As previously reported, on October 1, 2015, a purported class action was filed in the United States District Court for the Eastern District of Pennsylvania against the Company and its executive officers alleging violations under the Securities Exchange Act of 1934. On December 15, 2015, the court appointed a lead plaintiff, and on January 18, 2016, the plaintiff filed an amended complaint that set forth the same causes of action and requested substantially the same relief as the original complaint. On February 1, 2016, the Company filed a motion to dismiss the amended complaint. On April 11, 2016, the Court held oral arguments on the Company’s motion, and on April 14, 2016, the Court issued an order granting the Company’s motion to dismiss the amended complaint without leave to amend. On May 13, 2016, the plaintiff appealed the Court’s order to the United States Court of Appeals for the Third Circuit.

On August 16, 2016, the plaintiff filed a Motion For Relief From Final Judgment with the District Court seeking an order modifying the District Court’s April 14, 2016 order dismissing the complaint, and permitting the plaintiff to now file an amended complaint due to alleged newly discovered evidence. On September 19, 2016, the District Court issued an order denying the plaintiff’s Motion For Relief From Final Judgment, and on October 4, 2016, the plaintiff filed an appeal of this order with the Court of Appeals. On October 6, 2016, the Court of Appeals consolidated the two appeals of plaintiff for all purposes, and issued a briefing and scheduling order. On March 28, 2017, oral argument was held before the Court of Appeals, and as of the date hereof, the Court of Appeals has not rendered a decision.

By letter dated December 7, 2015, a purported shareholder of the Company demanded that the Board of Directors investigate, remedy and commence proceedings against certain of the Company’s current and former officers and directors for breach of fiduciary duties in connection with the material weakness in its internal controls over financial reporting which were more fully described in the Company’s Form 10‑K for the fiscal year ended June 30, 2015 (the “2015 Form 10‑K”). In response to the demand letter, the Board of Directors formed a special litigation committee (“the SLC”) consisting of Joel Brooks and William Reilly, Jr., in order to investigate and evaluate the demand letter. On June 1, 2016, and before the SLC had concluded its investigation, the purported shareholder filed a purported derivative action on behalf of the Company in the Chester County, Pennsylvania, Court of Common Pleas, against certain current and former officers and Directors. The complaint alleges that the defendants breached their fiduciary duties relating to the material weakness in internal controls reported in the 2015 Form 10‑K. The complaint seeks unspecified damages against the defendants and certain equitable relief. On July 15, 2016 the SLC issued its report (the “SLC Report”) which, among other things, concluded that the none of the current or former officers or Directors had breached their fiduciary duties, that it was not in the best interests of the Company to pursue the pending shareholder derivative action, and that the Company request the Court to dismiss the action in its entirety. On August 1, 2016, the Board of Directors of the Company adopted all of the conclusions and recommendations set forth in the SLC Report. On August 17, 2016, the Company filed with the Court a Motion to Dismiss the shareholder derivative complaint. On March 8, 2017, the Court entered an order granting the Company’s Motion to Dismiss the complaint. On April 6, 2017, the plaintiff appealed the order to the Superior Court of Pennsylvania. As of the date hereof, the Superior Court has not rendered a decision.

The ultimate outcome of these matters cannot be determined at this time. The Company believes that it has meritorious defenses to such claims and is defending them vigorously, and has not recorded a provision for the ultimate outcome of these matters in its financial statements.