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COMMITMENTS AND CONTINGENCIES | 12 Months Ended
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Jun. 30, 2014
Commitments and Contingencies Disclosure [Abstract] |
COMMITMENTS AND CONTINGENCIES | 16. COMMITMENTS AND CONTINGENCIES LEASE COMMITMENTS On June 26, 2014, the Company and Varilease Finance, Inc. (“Varilease”), entered into six Sale Leaseback Agreements (the “Sale Leaseback Agreements” or a “Sale Leaseback Agreement”) pursuant to which Varilease purchased ePort equipment owned by the Company and used by the Company in its JumpStart program. If all of the ePort equipment described in the Sale Leaseback Agreements is purchased by Varilease, the aggregate purchase price to be received by the Company would be approximately $8,000,000. Concurrently with entering into the Sale Leaseback Agreements, the Company and Varilease entered into six Schedules (the “Schedules” or a “Schedule”) each corresponding to a Sale Leaseback Agreement. The Company and Varilease also entered into a Master Lease Agreement (the “Master Lease Agreement”) which is incorporated by reference into each Schedule. Each Schedule (including the Master Lease Agreement) sets forth the terms and conditions pursuant to which Varilease would lease to the Company the ePort equipment to be purchased by Varilease from the Company pursuant to the corresponding Sale Leaseback Agreement. Each Schedule provides for a 36-month base lease term and specifies the base monthly rental for the equipment described in the Schedule. During the lease term, all of the costs, expenses and liabilities associated with the equipment are to be borne by the Company, and the Company is entitled to the unlimited use of the equipment. At the completion of the base lease term provided in each Schedule, the Company will have, among other things, the option to either purchase the equipment described in the Schedule for a price to be agreed upon by the Company and Varilease, or extend the lease term of the Schedule for an additional twelve months at the base monthly rental, at the conclusion of which all of the right, title and interest of Varilease in the ePort equipment would pass to the Company. The Master Lease Agreement includes customary events of default, including non-payment by the Company of the monthly rental or other charges due under any Schedule. The Master Lease Agreement provides that in the event of the declaration by Varilease of a default, the Company would pay to Varilease, among other things, any unpaid amount due on or before the declaration of default plus liquidated damages equal to the Stipulated Loss Value of the equipment. The Stipulated Loss Value of the equipment is an amount equal to 110% of the Company’s original cost for such equipment less 1.25% of such cost for each month elapsed during the lease term through the declaration of default. On June 27, 2014, Varilease completed the purchase from the Company of the ePort equipment described in two of the Sale Leaseback Agreements for an aggregate of $2,995,095, and pursuant to the corresponding Schedules, the Company is obligated to pay to Varilease a base monthly rental of $82,365 for this equipment during the 36-month lease term. The Company is accounting for the Sale Leaseback as an operating lease. The remaining Sale Leaseback Agreements as described above were completed subsequent to June 30, 2014 (see Note 17). Upon the completion of the sale under the first two agreements in June 2014, the Company computed a gain on the sale of its ePort equipment in the amount of $1,152,207 as follows:
Rental equipment sold, cost |  | $ | 1,918,920 |
Rental equipment sold, accumulated depreciation upon sale |  |  | (76,032 | )
Rental equipment sold, net book value |  |  | 1,842,888 |
Proceeds from Sale |  |  | 2,995,095 |
Gain on sale of rental equipment |  | $ | 1,152,207 |
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. The computed gain on the sale will be recognized ratably over the 36 month 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. For the year ended June 30, 2014 the Company recognized $9,522 of the gain and the deferred gain amounted to $1,142,685 as of June 30, 2014. The Company intends to utilize the proceeds from the sale of the equipment for working capital purposes. Other lease commitments include leases for its operations from various facilities. The Company leases 17,249 square feet of space located in Malvern, Pennsylvania for its principal executive office and used for general administrative functions, sales activities, product development, and customer support. In November 2010, the Company entered into an amended lease of its principal executive office in Malvern, Pennsylvania, which extended the lease term from December 31, 2010 to April 2016. The amendment includes rental payments of approximately $29,000 to $32,000 as well as a four month period of no rent payments and leasehold improvements of approximately $195,000. The straight-lined rent expense for this office is approximately $25,000 per month for the duration of the lease. The Company leases space in Malvern, Pennsylvania for its product warehousing and shipping support. In October 2011, the Company amended the lease of its operations site in Malvern, Pennsylvania, to extend the lease term from December 31, 2011 to December 31, 2012. The amendment includes monthly rental payments of approximately $15,100 to $16,200. Beginning in January 2012 the straight-lined rent expense for this office is approximately $15,600 per month for the duration of the amended lease period. In November 2012, the Company amended and extended this lease to January 31, 2013 with monthly rent of $16,721 for January 2013. In November 2012, the Company entered into a lease for a new operations site in Malvern, Pennsylvania to replace its existing site and lease. The lease term for the 11,250 square feet of space is January 1, 2013 through February 29, 2016. The lease includes monthly rental payments from $4,406 to $4,678 as well as a two month period of no rent payments. Beginning in January 2013 the straight-lined rent expense for this operations site is approximately $4,300 per month for the duration of the lease period. Rent expense under operating leases was approximately $372,000, $432,000, and $502,000 during the years ended June 30, 2014, 2013, and 2012, respectively. Future minimum lease payments subsequent to June 30, 2014 under non-cancellable operating leases and capital leases are as follows:
|  | Operating Leases |  |  | Other Operating |  |  | Total Operating |  |  | Capital |
|  | from Sale Leaseback |  |  | Leases |  |  | Leases |  |  | Leases |
2015 |  | $ | 988,381 |  |  | $ | 435,578 |  |  | $ | 1,423,959 |  |  | $ | 198,416 |
2016 |  |  | 988,381 |  |  |  | 361,927 |  |  |  | 1,350,308 |  |  |  | 111,647 |
2017 |  |  | 988,381 |  |  |  | 810 |  |  |  | 989,191 |  |  |  | 92,261 |
2018 |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 60,585 |
2019 |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 23,362 |
Thereafter |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
Total minimum lease payments |  | $ | 2,965,143 |  |  | $ | 798,315 |  |  | $ | 3,763,458 |  |  | $ | 486,271 |
Less amount representing interest |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 71,745 |
Present value of net minimum lease payments |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 414,526 |
Less current obligations under capital leases |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 164,660 |
Obligations under capital leases, less current portion |  |  |  |  |  |  |  |  |  |  |  |  |  | $ | 249,866 |
EMPLOYMENT AGREEMENTS On November 30, 2011, the Company and Mr. Herbert entered into an Amended and Restated Employment and Non-Competition Agreement that replaced his prior employment agreement with the Company. The agreement provides for an initial term continuing through January 1, 2013, which is automatically renewed for consecutive one year periods unless terminated by either Mr. Herbert or the Company upon at least ninety days’ notice prior to the end of the initial term or any one year extension thereof. The agreement increased Mr. Herbert’s base salary to $341,227, which is equal to the base salary under his prior employment agreement plus an amount equal to the cost to the Company of the car allowance and supplemental disability insurance coverage provided to him under his prior employment agreement; and, the car allowance and supplemental disability insurance coverage that had been provided to him under his prior employment agreement, which have been discontinued. He is eligible for a cash bonus as described in the next sentence. The agreement provides for the payment to Mr. Herbert of a cash bonus of $30,000 if the Company would achieve all of the minimum threshold performance target goals under the Fiscal Year 2012 Executive Performance Plan, of $50,000 if the Company would achieve all of the target performance goals under the plan, and of $75,000 if the Company would achieve all of the maximum distinguished performance target goals under the plan. The Company has agreed to obtain and pay the premiums for a term life insurance policy in the amount of $1,500,000 on the life of Mr. Herbert while he is employed by the Company. Mr. Herbert has the right to designate the beneficiary of the policy. On September 5, 2012, the Company discontinued this policy and Mr. Herbert’s base salary was increased by the amount equal to the annual premiums being paid by the Company for the life insurance policy. The agreement provides that if Mr. Herbert would terminate his employment with the Company for good reason (as defined in the agreement), or if the Company would terminate his employment without cause (as defined in the agreement), or if the Company would provide Mr. Herbert with a notice of non-renewal of his employment agreement, then the Company would pay to him a lump sum equal to two times his base salary on or before the termination of his employment. The term good reason as defined in the agreement, includes: (A) a material breach of the terms of the agreement by the Company; (B) the assignment by the Company to Mr. Herbert of duties in any way materially inconsistent with his authorities, duties, or responsibilities, or a material reduction or alteration in the nature or status of his authority, duties, or responsibilities as the Chief Executive Officer of the Company; (C) the Company reduces Mr. Herbert’s annual base salary; or (D) a material reduction by the Company in the kind or level of employee benefits to which Mr. Herbert is entitled immediately prior to such reduction with the result that his overall benefit package is significantly reduced unless such failure to continue a plan, policy, practice or arrangement pertains to all plan participants generally. As a condition to Mr. Herbert receiving any payments or benefits upon the termination of his employment for good reason, Mr. Herbert shall have executed and delivered (and not revoked) a release of any and all claims, suits, or causes of action against the Company and its affiliates in form reasonably acceptable to the Company. The agreement also provides that as a condition of the consummation of a USA Transaction (as defined in the agreement), the successor to the Company’s business or assets would agree to assume and perform Mr. Herbert’s employment agreement. If any such successor would not do so, Mr. Herbert’s employment would terminate on the date of consummation of the USA Transaction, and the Company would pay to Mr. Herbert a lump sum equal to two times his base salary on or before the termination of his employment. On April 12, 2005, Mr. DeMedio and the Company entered into an employment agreement pursuant to which he was employed as the Chief Financial Officer of the Company. In the event that a USA Transaction shall occur, then Mr. DeMedio has the right to terminate his agreement upon thirty days’ notice to the Company. On September 24, 2009, the Company agreed to obtain and pay the premiums for a term life insurance policy in the amount of $750,000 on the life of Mr. DeMedio while he is employed by the Company. Mr. DeMedio has the right to designate the beneficiary of the policy. The Company has agreed to obtain and pay the premiums for a supplemental long term disability policy covering Mr. DeMedio over and above the existing long-term group disability plan of the Company. If he shall become disabled while employed by the Company, the policy would provide for monthly disability coverage of up to 65% of his monthly base compensation payable to age 65 or death. If Mr. DeMedio’s employment with the Company would be terminated without cause, the Company has agreed, at its cost, to continue to provide Mr. DeMedio with health insurance benefits substantially similar to those which he is receiving immediately prior to the date of termination for a one year period following such termination. On April 14, 2011, the Company and Mr. DeMedio entered into an additional amendment to the employment agreement. The agreement extended the term of Mr. DeMedio’s employment with the Company from June 30, 2011 until June 30, 2014, and will automatically continue from year to year thereafter unless terminated as of the end of the original term or any such one year renewal period by the Company or Mr. DeMedio by at least ninety days’ notice. In connection with the amendment, Mr. DeMedio was issued 25,000 shares of common stock under the 2010 Stock Incentive Plan which vested as follows: 8,333 on April 14, 2011; 8,333 on April 14, 2012; and 8,334 on April 14, 2013. Effective July 1, 2011, Mr. DeMedio’s annual base salary was increased to $220,000. On September 27, 2011, the Company and Mr. DeMedio entered into another amendment to his employment agreement pursuant to which Mr. DeMedio was granted an aggregate of 25,000 shares of common stock as a bonus for his performance during the last six months of the 2011 fiscal year which vest as follows: 8,333 on the date of signing the amendment; 8,333 on the first anniversary of such signing date; and 8,334 on the second anniversary of such signing date. Mr. DeMedio also agreed that the premiums for his supplemental long term disability policy being paid by the Company would now be included in his wages and be taxable to him. On September 5, 2012, the Company discontinued Mr. DeMedio’s car allowance, supplemental disability insurance policy and life insurance policy, and the amount of his base salary was increased by the annual cost of these benefits. On November 7, 2013, the Company and Mr. DeMedio, entered into an amendment to the employment agreement. The amendment to Mr. DeMedio’s employment agreement (the “DeMedio Amendment”) provides that (i) if following a change in control of the Company (as defined in the DeMedio Amendment) Mr. DeMedio would terminate his employment with the Company for good reason (as defined in the DeMedio Amendment), or (ii) if the Company would terminate his employment at any time without cause (as defined in the DeMedio Amendment), or (iii) if the Company would provide Mr. DeMedio with a notice of non-renewal of his employment agreement, then the Company would pay to him a lump sum equal to one times his base salary on or before the termination of his employment and all restricted stock awards and stock options would become vested as of the date of termination. LITIGATION From time to time, the Company is involved in various litigation proceedings arising during the normal course of business which, in the opinion of the management of the Company, will not have a material effect on the Company’s financial position and results of operations or cash flows.

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