Quarterly report pursuant to Section 13 or 15(d)

Commitments and Contingencies

Commitments and Contingencies
6 Months Ended
Jun. 30, 2012
Notes to Financial Statements  
NOTE 11 - 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 June 30, 2012, and December 31, 2011, the estimated dollar value of the earn-out payable is $2,581,456, and $2,658,238, respectively. As of June 30, 2012 this was recorded as a current liability and was recorded as a non-current liability as of December 31, 2011 on the accompanying consolidated balance sheet.




On June 23, 2012, the Company initiated litigation against a former client (the “Defendant”) for failure to pay the Company’s invoices for services rendered under its Master License and Services Agreement. The complaint was filed in Superior Court of California, San Diego County. The litigation seeks to recover $67,795 in services and interest penalties. As of August 9, 2012, the Defendant has not responded to the complaint.


Opeerating Lease


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.


The minimum lease payments required over the next five years is shown below as of June 30, 2012.


  Minimum Lease Payments          
  2012     $ 65,100  
  2013       138,678  
  2014       143,492  
  2015       148,281  
        $ 495,551  


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. As of June 30, 2012, the Company has a Lease Exit Obligation totaling $71,481 for the period December 2011 through June 2012, made up of, $38,088 in remaining rent obligation, $32,550 in remaining deferred rent, and $843 in estimated common area maintenance charges. 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 was $92,617 for the six months ended June 30, 2012, and $34,043 (for the San Diego location only) for the six months ended June 30, 2011.