RESTRUCTURING

During the first quarter of 2017, we announced a restructuring initiative with a goal of significantly reducing annual operating costs from 2016 levels. The initiative included an organizational consolidation of management and oversight functions in order to streamline and better align the organization into more focused, efficient, and cost effective reporting relationships, and involved headcount reductions and office closures. This initiative was designed to return the Company to profitability and mitigate the substantial doubt that existed at December 31, 2016 about our ability to continue as a going concern. The restructuring actions taken in the first nine months of 2017 resulted in a decrease in operating expenses, excluding restructuring and asset impairment charges, of approximately $3.1 million and $6.7 million over the third quarter and first nine months of 2016, respectively.

The actions taken in the first quarter of 2017 included closing our offices in Rochester, Minnesota, New York, New York, and Arlington, Virginia and impacted 20 employees, primarily located in these offices. During the second quarter of 2017, we fully exited the New York and Arlington facilities and took additional actions to improve our operating efficiencies. These actions impacted an additional 17 production and administrative employees in our Solon location.

During the three months ended September 30, 2017 we recorded net restructuring credits totaling approximately $0.2 million, primarily related to a reduction of $0.3 million related to the revision of our initial estimates of the cost and offsetting sublease income for the remaining lease obligations for the former New York, New York office. The sublease agreement was finalized in October 2017. This reduction was partially offset by the reclassification of other expenses primarily for legal costs related to the restructuring actions totaling approximately $0.1 million.

For the nine months ended September 30, 2017, we recorded restructuring charges totaling approximately $1.5 million, consisting of approximately $0.7 million in severance and related benefits, $0.6 million in facilities costs related to the termination of the Rochester lease obligations and the remaining lease obligations for the former New York and Arlington offices, and $0.2 million in other restructuring costs primarily related to fixed asset and prepaid expenses write-offs.

Our restructuring liabilities consist of one-time termination costs for severance and benefits to former employees and estimated ongoing costs related to long-term operating lease obligations. The recorded value of the termination severance and benefits to employees approximates fair value, as the remaining obligation is based on the arrangements made with the former employees, and these obligations will be completely satisfied in less than 12 months. The recorded value of the ongoing lease obligations is based on the remaining lease term and payment amount, net of estimated sublease income, discounted to present value. Changes in subsequent periods resulting from a revision to either the timing or the amount of estimated cash flows over the future period are measured using the credit adjusted, risk-free rate that was used to measure the restructuring liabilities initially. We estimated that we would receive a total of approximately $1.3 million in sublease payments to offset our remaining lease obligations, which extend until June 2021, of approximately $1.8 million. We expect to incur approximately $0.1 million in additional costs over the remaining life of our lease obligations, but we do not anticipate further major restructuring activities in the near future. The following is a reconciliation of the beginning and ending balances of our restructuring liability:



	Severance and Related Benefits			Facilities			Other			Total
Balance at January 1, 2017	$	—		$	—		$	—		$	—
Additions	643			19			12			674
Payments	(30		)	(19		)	(3		)	(52		)
Balance at March 31, 2017	$	613		$	—		$	9		$	622
Additions	127			811			106			1,044
Accretion of lease obligations	—			16			—			16
Write-offs	—			9			(95		)	(86		)
Payments	(313		)	(69		)	(20		)	(402		)
Balance at June 30, 2017	$	427		$	767		$	—		$	1,194
Additions	$	—		$	—		$	68		$	68
Accretion of lease obligations	$	—		$	8		$	—		$	8
Adjustment of lease obligations	$	—		$	(276	)	$	—		$	(276	)
Write-offs	$	—		$	—		$	—		$	—
Payments	$	(253	)	$	(109	)	$	(68	)	$	(430	)
Balance at September 30, 2017	$	174		$	390		$	—		$	564

While the substantial doubt about our ability to continue as a going concern continued to exist at September 30, 2017, we had $11.9 million in cash and no debt obligations at the end of the quarter. In addition, the restructuring actions taken in the first nine months of 2017 resulted in a decrease in operating expenses, excluding restructuring and asset impairment charges, of approximately $3.1 million and $6.7 million over the third quarter and first nine months of 2016, respectively. During the first quarter of 2017, we announced a restructuring initiative with the goal of reducing our operating costs by an estimated $10 million from 2016 levels. The intent of the restructuring strategy was to maximize operating cost reductions without sacrificing either our new product pipeline or potential long-term revenue growth. We continue to refine our cost savings estimate, and are now on track for a total cost reduction between $8.0 million to $9.0 million from the 2016 levels. Consequently, considering both quantitative and qualitative information, we continue to believe that the combination of our restructuring actions, current financial position, liquid resources, obligations due or anticipated within the next year, executive reorganization, and implementation of our sales channel strategy will return us to profitability in 2018 and effectively mitigates the substantial doubt about our ability to continue as a going concern.