10. Commitments and Contingencies

 

Office Lease Obligations –

 

The Company currently leases office space in Addison, a suburb of Dallas, Texas, that expires on March 31, 2025. The Company received a tenant improvement allowance of $1.3 million which was recorded as an increase in leasehold improvements and deferred rent to be amortized over the life of the lease.  The Company also received a one-year rent abatement, but the rent expense is being recorded on a straight-line basis.

 

In addition, the Company leases office spaces in Luton, England under a lease agreement that expires in June 2021 with an option to extend through June 2026; in London, England under a lease agreement that expires in January 2020; and in Dubai and Abu Dhabi, UAE under lease agreements that both expire in August 2018.

 

The Company also leases office space associated with its legacy Media business, which was sold on July 1, 2015. The office leases are located in New York and expire in 2018 and 2021. The Company has subleased some of these locations.

 

Future minimum rental payments under these leases are as follows:

 

 

Total rent expense under all operating leases for the year ended December 31, 2017 and 2016 were $1.5 million for each year. As part of the discontinued operations of the Media business unit, the Company abandoned the related Media properties and accrued a lease impairment charge using a cease-use date of July 1, 2015. The remaining lease impairment charge balance at December 31, 2017 was $0.3 million.

 

The Company is currently subleasing two facilities related to the abandoned properties of the Media business unit. The Company received payments totaling $0.5 million during 2017, which was less than the Company’s monthly lease obligations. The leases expire in February 2018 and February 2021.

 

Future minimum sublease receipts under these subleases are as follows:

 

 

Capital Lease Commitments -

 

The Company had entered into capital lease agreements with leasing companies for the financing of equipment and furniture purchases. The capital lease payments and amortization expired at various dates through June 2017 and there are no future minimum lease payments under non-cancelable capital leases agreements.

 

Legal proceedings -

 

The Company is subject to legal proceedings and claims that arise in the ordinary course of business. The Company accrues for losses related to legal proceedings when a potential loss is probable and can be reasonably estimated in accordance with FASB requirements. The Company has identified the following legal proceedings below. Accruals have not been recorded for loss contingencies related to the legal proceedings below because it is not probable that a loss has been incurred and the amount of any such loss cannot be reasonably estimated.

 

Class Action and Stockholder Derivative Lawsuit

On March 23, 2018, a class action and a verified stockholder derivative complaint on behalf of the Company entitled Eric Weinstein et al. v. Gregory H. Sachs et al., Case No. 2018-0210-AGB was filed in the Court of Chancery in the State of Delaware against the Company, as nominal defendant, and certain individual shareholders, directors and former employee of the Company, as defendants (the “Weinstein Proceeding”).  The lawsuit alleges that certain members of the Company’s Board breached their fiduciary duties of good faith and loyalty by agreeing to enter into a purchase agreement (the “Purchase Agreement”) with certain investors on March 25, 2015 to sell such investors shares of preferred stock of the Company, (i) on terms that allowed a small group of investors to acquire common stock of the Company at a significant discount, in a quantity that entrenched their power within the Company, favoring their interests to the detriment of the Company’s minority stockholders, and (ii) by knowingly making false and misleading disclosures, and failing to disclose all material information, to the Company’s stockholders.  The complaint further alleges that Mr. Sachs and Mr. Donald Wilson, as the Company’s controlling stockholders, breached their fiduciary duties of good faith and loyalty by agreeing to issue preferred stock of the Company on terms that allowed a small group of investors to acquire common stock of the Company at a significant discount, in a quantity that entrenched their power within the Company, favoring their interests to the detriment of the Company.  The complaint also alleges that certain of the Company’s insiders, including four directors and a former employee, were unjustly enriched by the opportunity to acquire common stock of the Company at a discount to its trading price at the time.  The lawsuit seeks to cause the defendants to disgorge to the Company the stock that they received at a discount to the market price, and also seeks an award of appropriate damages, plus pre- and post-judgment interest for the plaintiff, the class and the Company. The Company believes that the allegations set forth in the complaint are without merit and intends to defend itself vigorously in the proceedings. Due to the inherent uncertainties of litigation and the early stage of the proceedings, the Company cannot predict the ultimate outcome of this matter.

Patent Litigation

On March 27, 2018, Ultravision Technologies, LLC (“Ultravision”), filed patent infringement complaints against us in the International Trade Commission (“ITC”) and the United States District Court for the Eastern District of Texas, Marshall Division (“District Court”), alleging infringement of claims in two United States patents based on modular LED display panels sold by the Company. The ITC matter is entitled In the Matter of Certain Modular LED Display Panels (No. 337-3302). The ITC complaint seeks exclusion and cease and desist orders.  Pursuant to the complaint filed in the District Court, Case No. 2:18-cv-00109-JRG, Ultravision is seeking to enjoin the Company from further acts of direct and/or indirect infringement of such United States patents, including the manufacture, sale, offer for sale, importation and use of the infringing products, unspecified monetary relief, injunctive relief for the payment of royalties and reimbursement for costs and attorneys’ fees.  The Company intends to defend itself vigorously in the proceedings. Due to the inherent uncertainties of litigation and the early stage of the proceedings, the Company cannot predict the ultimate outcome of this matter.