Contingencies

6 Months Ended

Jun. 30, 2012

Contingencies [Abstract]

Contingencies

9. Contingencies:

In the ordinary course of business the Company may become a party to various legal proceedings generally involving collection actions, contractual matters, infringement actions, product liability claims and other matters.

On March 26, 2012, Koninklijke Philips Electronics N.V. and Philips Solid-State Lighting Solutions, Inc. (collectively, “Philips”) filed a lawsuit (civil action no. 12-cv-10549) in the United States District Court for the District of Massachusetts against the Company alleging that the Company’s Array and certain other products infringe certain of Philips’ patents for LED lighting. The plaintiff is seeking injunctive relief, monetary damages and reimbursement of its attorney’s fees and costs. The Company is evaluating Philips’ claims and is in settlement discussions with Philips. If the Company is unable to settle this matter, the Company intends to vigorously defend its products and intellectual property.

On May 10, 2011, the CAO Group, Inc. (“CAO”) filed a lawsuit (civil action no. 2:11-cv-00426) in the United States District Court for the District of Utah Central Division against the Company alleging that the Company’s Array and certain other products infringe certain of CAO’s patents for LED lighting. The complaint also lists GE Lighting, Osram Sylvania, Lighting Science Group Corporation, Sharp Electronics Corporation, Toshiba International Corporation, Feit Electric Company, Inc., and Lights of America, Inc. as defendants. The plaintiff is seeking injunctive relief, monetary damages and reimbursement of its attorney’s fees and costs. The Company is evaluating CAO’s claims. The Company intends to vigorously defend its products and intellectual property.

As the Company’s financial condition deteriorated during the last several months, the Company accelerated cash conservation measures, including delaying or withholding payments to vendors. Some of the Company’s suppliers and service providers have stopped doing business with us, some have threatened collection actions and others can be expected to do likewise unless funding is obtained. In order to preserve its business, the Company will have to restore credit with its vendors and pay trade payables. One of these vendors has requested a commitment from the Company related to inventory this vendor is holding for future use and sale to the Company. On July 27, 2012, the Company received a letter from the vendor’s attorney threatening litigation. The Company has reviewed the vendor’s claim and, in an effort to avoid litigation, has initiated dispute resolution negotiations with the vendor.

Because the Company believes it is probable that settlements with respect to these contingencies will be finalized, the Company established an accrual of $265,000 as its best estimate of these potential liabilities.