13.  COMMITMENTS AND CONTINGENCIES  

 

Commitments

 

The Company has entered into operating leases for office space.  The lease agreement associated with its headquarters required a security deposit and included an allowance, which was used against leasehold improvements. Rental expense for operating leases, which is recognized on a straight-line basis over the lease term, was $0.6 million and $0.3 million for the years ended December 31, 2013 and 2012, respectively.  

 

The following table represents the approximate future minimum lease payments at December 31, 2013 due under non-cancellable operating lease agreements with terms in excess of a year:

 

   

 

On November 13, 2012, the Company entered into a Service Agreement (the "Agreement") with The Street, Inc. ("The Street") effective as of November 15, 2012 and expiring on December 31, 2014. The Service Agreement was terminable at will by either party upon 60 days' notice commencing May 31, 2013. Under the Agreement, The Street was required to perform certain services for the Company's personal finance websites. In exchange for those services, the Company would share a portion of the personal finance sites' revenues and receive reimbursements of operating expenses up to a contractually specified amount.

 

On March 29, 2013, The Street sent a formal notice to exercise its right to terminate the Agreement effective May 31, 2013.

 

The Company originally accounted for the reimbursable expenses as contract receivables and for the revenue share as contractual liabilities pursuant to the terms of the Agreement. Over the term of the Agreement, the contract receivables and contractual liabilities gave rise to a net contract liability of $0.2 million. The Company believes that The Street wholly underperformed on the contract constituting a fundamental breach of contract. Thus, the breach pursuant to the respective state's contract law negates any payment obligation relating to the Agreement. As of December 31, 2013, the Company fully reserved the contract receivable and derecognized the contractual liability, resulting in a net impact of $0.2 million in the consolidated statement of operations.     

 

On May 1, 2013, Remark Media entered into a sublease for its Concourse Six office space through the remainder of the lease term giving cause to an abandonment of lease analysis. Following the exit of the lease, Remark Media recognized an early termination liability of $0.3 million adjusted for sublease rental income, leasehold allowances, and the use of security deposits. The early termination liability principally represents the escalating lease payments inherent in the deferred rent as of the cease use date, net of the sub-lease income. The estimated fair value of the costs was based on the terms of the lease agreement and sub-lease agreement and, as such, represents the lease commitment over the next three years. The Company elected not to present value that obligation because the difference between the gross and discounted future cash flow settlements was immaterial to the financial statements.

 

On the cease use date, the Company recorded an early termination expense of $16 thousand - which was adjusted for the remaining deferred rent, use of security deposits, and future sublease income. These fees were included in the general and administrative expenses in the consolidated statement of operations and comprehensive loss.

 

On December 31, 2013, the Company entered into a Lease Termination Agreement with the landlord of its Concourse Five office space, waiving all rights to apply unpaid leasehold improvements. The termination penalty for abandoning the Concourse Five office space was $0.1 million which was recorded as an expense and included in the general and administrative expenses in the consolidated statement of operations and comprehensive loss.

 

The following depicts the remaining accrual balances for these early termination cost.

 

 

 

The early termination liability of $0.4 million is recorded in accrued expenses and other current liabilities on the consolidated balance sheet.

 

Contingencies

 

On July 23, 2012, a complaint was filed by FOLIO fn, Inc. (“FOLIO fn”) against the Company’s subsidiary MyStockFund Securities, Inc. (“MyStockFund”), alleging that MyStockFund had infringed six U.S. Patents held by FOLIO fn relating to investment methods.  The complaint seeks injunctive relief, damages, pre-judgment interest, and attorneys' fees. The Company has reached a settlement.  

 

In addition, the Company is engaged from time to time in certain legal disputes arising in the ordinary course of business.   The Company accrues liabilities for legal contingencies when it believes that it is both probable that a liability has been incurred and that it can reasonably estimate the amount of the loss. The Company will review these accruals and adjust them to reflect ongoing negotiations, settlements, rulings, advice of legal counsel, and other relevant information. To the extent new information is obtained, and the Company's views on the probable outcomes of claims, suits, assessments, investigations, or legal proceedings change, changes in the Company's accrued liabilities would be recorded in the period in which such determination is made. Management believes that the outcome of any such matters will not have a material impact on the consolidated financial statements.