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Note 6 - Commitments and Contingency
 12 Months Ended
Dec. 31, 2013
Commitments and Contingencies Disclosure [Abstract]  
Commitments and Contingency

NOTE 6 — Commitments and Contingencies

 

Operating Lease

The Company operates its headquarters under a non-cancelable operating lease which provides for the lease by the Company of approximately 37,100 square feet of space in Newark, California. On December 28, 2012, the Company amended its commercial building lease agreement to extend the term of the lease to June 30, 2022. The base rent under the facilities lease was $29,705 per month for the period from July 1, 2012 through June 30, 2013. The base rent increased 4% to $30,893 beginning July 1, 2013 through June 30, 2014. The base rent increases annually thereafter at a rate of four percent per year for the remaining term of the lease ending June 30, 2022.

 

Future minimum lease payments under all operating leases are as shown below:

 

Annual minimum payments:  Amount
 2014   $378,130 
 2015    393,255 
 2016    408,986 
 2017    425,345 
 2018 to 2022     2,132,136 
 Total minimum payments   $3,737,852

 

 

Rental expense under all operating leases for the years ended December 31, 2013 and 2012 was $427,827 and $373,143, respectively. The amount of deferred rent at December 31, 2013 and December 31, 2012 was $288,773 and $179,527, respectively.

 

Capital Lease Obligations

The Company leases certain of its equipment under capital leases. The leases are collateralized by the underlying assets. At December 31, 2013 and December 31, 2012, property and equipment with a cost of $87,945 and $73,275, respectively, were subject to such financing arrangements. Related accumulated amortization at December 31, 2013 and December 31, 2012, amounted to $20,518 and $8,380, respectively.

 

Future minimum payments under capital lease and equipment financing arrangements as of December 31, 2013, are as follows:

 

Annual minimum payments:  Amount
2014   26,467 
2015   26,467 
2016   11,916 
     Total minimum payments    64,850 
Less amount representing interest    (5,803)
     Present value of net minimum payments   $59,047 
Short term portion of capital leases    (22,818)
Long term portion of capital leases   $36,229

 

 

Purchase Commitments

As of December 31, 2013, the Company has non-cancelable purchase commitments for inventory to be used in the ordinary course of business of approximately $2,048,000.

 

Legal Matters

The Company is subject to disputes, claims, requests for indemnification and lawsuits arising in the ordinary course of business. Under the indemnification provisions of the Company’s customer agreements, the Company routinely agrees to indemnify and defend its customers against infringement of any patent, trademark, copyright, trade secrets, or other intellectual property rights arising from customers’ legal use of the Company’s products or services. The exposure to the Company under these indemnification provisions is generally limited to the total amount paid for the indemnified products. However, certain indemnification provisions potentially expose the Company to losses in excess of the aggregate amount received from the customer. To date, there have been no claims against the Company by its customers pertaining to such indemnification provisions, and no amounts have been recorded. 

 

On October 9, 2013, Hudson Bay Master Fund Ltd. filed a complaint in the United States District Court for the Northern District of Illinois, Eastern Division, alleging that the Company had triggered anti-dilution provisions of its warrant and was entitled to adjustment of the exercise price and the number of shares. The warrant was issued on November 19, 2010 for 500,000 shares at an exercise price of $2.44 per share. On December 28, 2013, the Company agreed to a settlement with Hudson Bay Master Fund Ltd. and the case was dismissed without judgment as to the merits of Hudson Bay Master Fund’s allegations. In the settlement, the Company agreed to amend the warrant to reset the conversion price to $1.25 per share under the anti-dilution provisions of the warrant, and increase the number of common shares issuable upon exercise to 976,000 shares, which retains the total amount of proceeds under the terms of the original warrant. The amended warrant is a continuation of the original warrant under the anti-dilution terms and does not constitute a change in the underlying warrant. The Company also agreed to issue 37,500 shares of common stock to the warrant holder, valued at the reported closing price on December 31, 2013 of $0.76 per share, resulting in an expense of $28,500 in the fourth quarter. The shares of common stock were subsequently issued in January 2014.