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Note 11 - Commitments and Contingencies | 9 Months Ended
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Oct. 31, 2013
Commitments and Contingencies Disclosure [Abstract] |
Commitments and Contingencies Disclosure [Text Block] | 11. Commitments and Contingencies Purchase Commitments with Suppliers The Company has historically issued purchase orders to its suppliers with delivery dates from four to six weeks from the purchase order date. In addition, the Company has typically provided significant suppliers with rolling six-month forecasts of material and finished goods requirements for planning and long-lead time parts procurement purposes only. The Company generally accepts delivery of materials pursuant to its purchase orders subject to various contract provisions that allow it to delay receipt of such order or allow it to cancel orders beyond certain agreed lead times. Such cancellations may or may not include cancellation costs payable by the Company. In the past, the Company has been required to take delivery of materials from its suppliers that were in excess of its requirements and the Company has previously recognized charges and expenses related to such excess material. In the third quarter of fiscal 2014, we began the process of cancelling purchase orders beyond the forecasted unit volume contained in Lenovo’s rolling forecast upon the receipt of their notification that it will cease purchasing our product (See Note 2). During the third quarter ended October 31, 2013, we recorded a charge to cost of revenue in the amount of $317,000 related to our remaining inventory balances, representing primarily component inventory in excess of requirements. We also shipped certain components to a liquidator in an attempt to salvage some economic value from these parts, but to date we have not recovered any amounts and expect such recoveries, if any, to be minor. Executive Severance Agreements The Company has severance compensation agreements with two executives, our Chief Executive Officer and Chief Accounting Officer. These agreements require the Company to pay these executives, in the event of certain terminations of employment following a change of control of the Company, up to the amount of their then current annual base salary and the amount equal to any bonus which the executive would have earned for the year in which the termination occurs plus the acceleration of unvested options. Although the contemplated sale of shares of common stock and the issuance of the Warrants and possible issuance of the Additional Warrant Shares by the Company to Broadwood (see Note 9) could result in a change of control for purposes of the severance compensation agreements, each of the executives who are parties to those agreements has waived their rights to receive payments under those agreements in the event that a change of control occurs as a result of the sale of shares and the issuance of Warrants and Additional Warrants to Broadwood. Additionally, as a result of the Company’s sale of the 6,250,000 shares of common stock to Elkhorn during the first quarter of fiscal 2014 (see Note 9), Elkhorn’s beneficial ownership of the Company increased from approximately 9% to approximately 47% of the Company’s outstanding voting stock as of December 12, 2013, making Elkhorn the Company’s largest shareholder and resulting in a change of control for purposes of the severance compensation agreements. Each of the executives who are parties to those agreements has waived their rights to receive payments under those agreements as a result of the change in Elkhorn’s beneficial ownership of the Company. Letter of Credit During the first quarter of fiscal 2010, the Company obtained a $77,000 letter of credit from Silicon Valley Bank (“SVB”) to allow for continuous and unlapsed compliance with a lease provision for the Company’s corporate offices. The letter of credit expires on August 1, 2014. Legal Proceedings and Contingencies On April 26, 2011, Chicony, the contract manufacturer of the Bronx product that was the subject of a product recall in 2010, filed a complaint against us for breach of contract, seeking payment of $1.2 million for the alleged non-payment by us of amounts alleged by Chicony to be due it for products purchased from it by the Company. We denied liability and filed a cross-complaint on May 13, 2011 seeking the recovery of damages of $4.9 million caused by Chicony's failure to adhere to our technical specifications when manufacturing the Bronx product, which we believe resulted in the recall of the product. On May 23, 2012, Chicony filed its First Amended Complaint increasing the payment it is seeking from $1.2 million to $1.7 million based on alleged component parts it purchased for the Bronx product, but was unable to use in any other products thereafter. On April 16, 2013, the court approved our first-amended cross-complaint, which adds intentional interference to our complaint and increases the damages we seek to at least $15.0 million. In an effort to resolve this litigation before the previous trial date of April, 2013, we sent Chicony a settlement offer, which has since lapsed without response from Chicony. The trial began on October 21, 2013 and is currently expected to conclude by the end of January, 2014. The outcome of this matter is not determinable as of the date of the filing of this report. We have previously accrued $1.1 million for the possibility that we could incur a liability to Chicony should it prevail in the lawsuit. In July 2013, in response to our stated desire to have counsel appointed by us representing our consolidated interests across the entirety of our litigation with Chicony, we entered into discussions with our insurance carrier and on August 26, 2013 we entered into an agreement as a means to achieve our desired representation goal. Pursuant to the agreement, our insurance carrier paid one hundred percent of our defense costs and fifty percent of our expert fees related to the Chicony litigation through August 31, 2013 and we received a one-time, lump-sum payment in exchange for a mutual release and the assumption of sole financial responsibility for any expenses related to our ongoing Chicony litigation subsequent to August 31, 2013. As a result, a single law firm of our choosing now represents us on all matters concerning the Chicony litigation. Additionally, in the third quarter of fiscal 2014, we entered an alternative fee arrangement with our legal counsel representing us in the Chicony matter. On September 1, 2011, subsequent to receiving an infringement notification from us, ACCO Brands USA LLC and its Kensington Computer Products Group division (collectively “Kensington”) filed a lawsuit against us alleging that five of our patents relating to power technology are invalid and/or not infringed by products made and/or sold by Kensington. On February 29, 2012, we denied these claims and filed a cross-complaint alleging infringement by Kensington of each of these five patents. Efforts to resolve the dispute, by court ordered mediation, have been unsuccessful. A number of these patents are currently the subject of re-examination proceedings initiated by Kensington or other third parties. This matter is ongoing and the outcome is not determinable, however if we do not prevail we will likely not obtain a license agreement to earn future license revenue from products sold by Kensington. Conversely, should we prevail the Company may be awarded a royalty which would generate license revenue to the Company in the future. In the third quarter of fiscal 2014, we changed legal representation for our ongoing Kensington litigation and entered an alternative fee arrangement. On March 6, 2012, we filed a lawsuit against EDAC Power Electronics Co. Ltd (“EDAC”) for breach of contract seeking payment of $2.5 million for the failure to deliver goods ordered by us in the time, place, manner and price indicated by each purchase order. As previously reported, the parties entered into a Settlement Agreement on July 24, 2012, ending the litigation between the parties. The settlement involved no cash payments by either of the parties, but allowed us to recover previously incurred product and freight costs and to discharge net liabilities of $1.4 million from our consolidated balance sheet that would otherwise have been due to EDAC had it prevailed in the lawsuit. The settlement resulted in a decrease to cost of revenue of $1.4 million. In addition to the pending matters described above, we are, from time to time, involved in various legal proceedings incidental to the conduct of our business. We are unable to predict the ultimate outcome of these matters.

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