RESTRUCTURING

During the first quarter of 2017, we announced a restructuring initiative with a goal of significantly reducing annual operating costs from 2016 levels. The initiative included an organizational consolidation of management and oversight functions in order to streamline and better align the organization into more focused, efficient, and cost effective reporting relationships, and involved headcount reductions and office closures. This initiative was designed to return the Company to profitability and mitigate the substantial doubt that existed at December 31, 2016 about our ability to continue as a going concern. For additional information regarding the restructuring actions taken in the 2017, please refer to Note 3., “Restructuring,” included under Item 8 of our 2017 Annual Report.

During the nine months ended September 30, 2018, we recorded net restructuring credits totaling approximately $46 thousand, primarily related to the revision of our initial estimates of the cost for the remaining lease obligation for our former Arlington, Virginia office. Restructuring adjustments recorded during the three months ended September 30, 2018 related to the accretion of the remaining lease obligations for the former New York, New York and Arlington, Virginia offices.

For the nine months ended September 30, 2017, we recorded restructuring charges totaling approximately $1.5 million, consisting of approximately $0.7 million in severance and related benefits, $0.6 million in facilities costs related to the termination of the Rochester, Minnesota lease obligation and the remaining lease obligations for the former New York and Arlington offices, and $0.2 million in other restructuring costs primarily related to fixed asset and prepaid expenses write-offs. For the three months ended September 30, 2017, we recorded restructuring credits totaling approximately $0.2 million, primarily related to the revision of our initial estimates of the cost and offsetting sublease income for the remaining lease obligation for the former New York office.

Our restructuring liabilities consist of one-time termination costs for severance and benefits to former employees and estimated ongoing costs related to long-term operating lease obligations. The recorded value of the termination severance and benefits to employees approximates fair value, as the remaining obligation is based on the arrangements made with the former employees, and these obligations will be completely satisfied in less than 12 months. The recorded value of the ongoing lease obligations is based on the remaining lease term and payment amount, net of estimated sublease income, discounted to present value. Changes in subsequent periods resulting from a revision to either the timing or the amount of estimated cash flows over the future period are measured using the credit adjusted, risk-free rate that was used to measure the restructuring liabilities initially. We expect to incur insignificant additional costs over the remaining life of our lease obligations, but we do not anticipate further major restructuring activities in the near future. The following is a reconciliation of the beginning and ending balances of our restructuring liability:



	Severance and Related Benefits			Facilities			Total
Balance at January 1, 2018	$	62		$	340		$	402
Accretion of lease obligations	—			6			6
Adjustment of lease obligations	—			(56		)	(56		)
Payments	(62		)	(6		)	(68		)
Balance at March 31, 2018	$	—		$	284		$	284
Accretion of lease obligations	—			3			3
Payments	—			(25		)	(25		)
Balance at June 30, 2018	$	—		$	262		$	262
Accretion of lease obligations	$	—		$	1		$	1
Payments	$	—		$	(23	)	$	(23	)
Balance at September 30, 2018	$	—		$	240		$	240

While substantial doubt about our ability to continue as a going concern continued to exist at September 30, 2018, we had $7.1 million in cash and no debt obligations at the end of the quarter. In addition, the restructuring actions taken in 2017 resulted in a decrease in total operating expenses, including restructuring charges, of approximately $3.1 million in the first nine months of 2018 compared to the first nine months of 2017. As a result of our first quarter 2017 restructuring initiatives, we have reduced our operating expenses to be more commensurate with our sales volumes, however, we continue to incur losses and have a substantial accumulated deficit, raising substantial doubt about our ability to continue as a going concern at September 30, 2018.

Our plans to achieve profitably include continuing to develop new technologies into sustainable product lines that allow us to effectively compete to expand our customer base, execute our marketing and sales plans, and continue to improve our supply chain and organizational structure. The restructuring and cost cutting initiatives implemented during 2017 were designed to allow us to effectively execute this strategy; however, our efforts may not occur as quickly as we envision or be successful, due to the long sales cycle in our industry, the corresponding time required to ramp up sales from new products into this sales cycle, the timing of introductions of additional new products, significant competition, and potential volatility given our customer concentration, among other factors. As a result, we will continue to review and pursue selected external funding sources to ensure adequate financial resources to execute across the timelines required to achieve these objectives including, but not limited to, the following:

•debt financing from asset-based lenders, leveraging our available unencumbered potential collateral base;

•financing from traditional or non-traditional investment capital organizations or individuals; and

•funding from the sale of our common stock or other equity or debt instruments.

These financing alternatives involve risks, and we may not be able to obtain additional funding on acceptable terms or in a timely fashion or at all. If we fail to generate cash or receive the funding necessary to grow our business, we would need to revise our business plan which could involve further reductions in our operating costs or headcount, each of which could have a material adverse effect on our business, future prospects, and financial condition.

Considering both quantitative and qualitative information, we continue to believe that the combination of our restructuring actions, current financial position, liquid resources, plans to obtain external financing, obligations due or anticipated within the next year, executive reorganization, and implementation of our product development and sales channel strategy will provide us with an ability to finance our operations through 2019 and, if adequately executed, will mitigate the substantial doubt about our ability to continue as a going concern.