Annual report pursuant to Section 13 and 15(d)

Commitments and Contingencies

Commitments and Contingencies
12 Months Ended
Dec. 31, 2011
Commitments and Contingencies [Text Block]
Commitments and Contingencies
Earn Out Contingency
The Company has an earn out commitment associated with the acquisition of Boomtext from Digimark, LLC.  An earn-out payment (payable 20 months after closing of the transaction) of a number of shares of common stock of the Company equal to (a) 1.5, multiplied by the Company’s net revenue from acquired customers and customer prospects for the twelve-month period beginning six months after the closing date, divided by (b) the average of the volume-weighted average trading prices of the Company’s common stock for the 25 trading days immediately preceding the earn-out payment (subject to a collar of $1.49 and $2.01 per share).  As of December 31, 2011 the estimated dollar value of the earn-out payable is $2,658,159, which is recorded as a non-current liability on the accompanying consolidated balance sheet.
In August 2008, the Company and certain employees, shareholders and directors (the “Plaintiffs”) initiated litigation against its former Chief Executive Officer (the “Defendant”) alleging criminal conduct against the financial interests and reputation of the Company.  The Defendant countersued the Company.  In December 2009, a judgment was entered in the Plaintiffs’ favor awarding damages and enjoining the Defendant from certain behavior prejudicial to the Company.  The Company has not recognized any gains from the damages that may be paid to the Company in the future due to the uncertainty of their ultimate realization.  Additionally, in a separate court action the Company has been enjoined against the payment of any amounts owed to the Defendant, including amounts due under a note payable noted above.
Operating Lease
The Company has a lease agreement for its office facilities in Chandler Arizona through December 2015, acquired through the acquisition of the assets of Digimark, LLC on August 1, 2011.  Monthly rents were $5,700 at December 31, 2011 and increase over time to $7,600 in January 2015.  Deferred rent at December 31, 2011 was $2,928.   Future lease amounts due under the lease agreement (as stated on December 31, 2011 and not including common area maintenance charges) total; $82,200 - 2012; $85,200 – 2013; $88,200 – 2014; and $91,200 – 2115.
On February 28, 2012, the Company signed an amendment to its existing lease for the facility in Chandler, Arizona to expand by adding 2,519 square feet in an adjacent suite.  The amended lease agreement remains in force through December 2015.  Future lease amounts now due under the amended lease agreement (as stated on April 1, 2011 and not including common area maintenance charges) total; $118,200 - 2012; $138,678 – 2013; $143,492 – 2014; and $148,278 – 2115.
The combined minimum lease payments required over the next five years is shown below.
Minimum Lease Payments
  $ 201,400  
    $ 896,448  
Lease Exit Obligation
The Company had a lease agreement for its office facilities in San Diego, California through June 2012.    Upon signing a lease agreement for the facility in Chandler, the Company determined it no longer needed the San Diego facility.  The property was vacated in November 2011 and returned to the owner.  The Company incurred $77,589 in Lease Exit Obligation for the period December 2011 through June, 2012, made up of, $38,088 in remaining rent obligation, $32,550 in remaining deferred rent, $5,453 in estimated common area maintenance charges, and $1,498 in property tax obligation.  The Company expects no further charges in relation to this lease exit obligation, aside from actual common area maintenance charges reconciled against the estimate.
Rent expense for both the San Diego, California, and Chandler, Arizona facilities (including related common area maintenance charges and lease abandonment charges) was $144,703 for the year ended December 31, 2011, and $72,986 (for the San Diego location only) for the year ended December 31, 2010.
At December 31, 2010, the Company was delinquent with respect to the payment of wages earned by current employees due to an insufficient balance of cash on hand at the time the payrolls were due to be paid to the employees.  Ahead of the Merger, employees agreed to convert the majority of the delinquent payments to equity in CommerceTel, Inc.  The employees have agreed to continue their employment in the expectation of eventual payment of the remaining amounts due.  It is the Company’s full intention to satisfy or reach a settlement with all past due balances outstanding, which total approximately $71,000 at December 31, 2011.