Quarterly report pursuant to Section 13 or 15(d)

Commitments & Contingencies

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Commitments & Contingencies
9 Months Ended
Sep. 30, 2018
Commitments and Contingencies Disclosure [Abstract]  
Commitments & Contingencies

Note 8 – Commitments & Contingencies

 

Operating Leases

 

Office Space

 

The Company pays TAG Aviation, a company owned by its Chief Executive Officer, Jarrett Gorlin (“Mr. Gorlin”) for office space that is currently being used as the Company’s principal business location plus utilities cost (see “Related-Party Transactions”) on a monthly basis. Base annual rent is $2,147 per month. Rent expense and utilities cost paid to TAG Aviation amounted to approximately $9,400 and $28,300, respectively, for the three and nine months ended September 30, 2018. Rent expense and utilities cost paid to TAG Aviation amounted to approximately $9,500 and $25,000 for the three and nine months ended September 30, 2017.

 

On September 1, 2018, the Company extended the term of the lease agreement for the commercial building which originally commenced on August 1, 2015. The term of the new lease agreement is for two years four months commencing on September 1, 2018 and ending December 31, 2020. Base rent under the old lease agreement was $2,948 and base rent under the new agreement is $3,095. Total lease expense for the three and nine months ended September 30, 2018 was approximately $8,800 and $26,000, respectively related to this lease. Total lease expense for the three and nine months ended September 30, 2017 was approximately $8,600 and $26,000, respectively related to this lease.

 

Future minimum lease payments under this rental agreement are approximately as follows:

 

For the year ending:

 

December 31, 2018     $ 9,300  
December 31, 2019       37,500  
December 31, 2020       38,600  
      $ 85,400  

 

Equipment

 

The Company entered into a non-cancelable 36-month operating lease agreement for equipment on March 23, 2018. The agreement is renewable at the end of the term and requires the Company to maintain comprehensive liability insurance. Total lease expense was approximately $800 and $2,500, respectively, for the three and nine months ended September 30, 2018. Total lease expense was approximately $900 and $2,900, respectively, for the three and nine months ended September 30, 2017.

 

Future minimum lease payments under this operating lease agreement are approximately as follows:

 

For the year ending:

 

December 31, 2018   $ 500  
December 31, 2019     1,900  
December 31, 2020     1,900  
December 31, 2021     500  
    $ 4,800  

 

Consulting Agreements

 

The Company has an agreement with Jesse Crowne, a Director and Co-Chairman of the Board of the Company, to provide business development consulting services for a fee of $13,333 per month. The Company incurred $39,999 and $120,000, respectively, for the three and nine months ended September 30, 2018 related to this consulting agreement, of which $13,333 was included in accounts payable at September 30, 2018. The monthly consulting fee was increased from a rate of $9,167 beginning in January 2018. The Company incurred approximately $30,000 and $85,000, respectively, for the three and nine months ended September 30, 2017 related to this consulting agreement.

 

The Company has a consulting agreement with a sales, marketing, and distribution consultant in Latin America at a fee of $7,000 per month through December 31, 2018. The Company incurred $21,000 and $63,000, respectively, for the three and nine months ended September 30, 2018 related to this consulting agreement. The Company incurred $21,000 and $45,000, respectively, for the three and nine months ended September 30, 2017 related to this consulting agreement.

 

The Company has consulting agreements with a varying team of sales, marketing, and distribution consultants in Europe who provide consulting services for aggregate compensation amounting to approximately €21,000 (approximately $25,000) per month. The consulting agreements, while subject to modifications, commenced at separate dates and will also terminate at separate dates through April 30, 2019. The Company incurred approximately $71,000 and $280,000, respectively, for the three and nine months ended September 30, 2018 related to these consulting agreements. The Company incurred approximately $58,000 and $131,000, respectively, for the three and nine months ended September 30, 2017 related to these consulting agreements.

 

Generator development agreement

 

The Company was obligated to reimburse Bovie Medical Corporation (“Bovie”) up to $295,000 for the development of the Pro-40 electrocautery generator. The Company did not incur any expenses to Bovie for the three and nine months ended September 30, 2018 under this agreement. The Company incurred approximately $3,000 and $33,000, respectively, for the three and nine months ended September 30, 2017 under this agreement. Through September 30, 2018, the Company has paid approximately $422,000 to Bovie related to this agreement. The original $295,000 agreement was a based number along the pathway of development. Additional requirements were added as the research and development process progressed and as a result certain prices increased and additional costs were added to further customize the DenerveX System. The Company is currently manufacturing the generator for sales.

 

Distribution center and logistic services agreement

 

The Company has a non-exclusive distribution center agreement with a logistics service provider in Berlin, Germany pursuant to which they manage and coordinate the DenerveX System products which the Company exports to the EU through June 2019. The Company originally paid a fixed monthly fee of €2,900 (approximately $3,500) for all accounting, customs declarations and office support, and a variable monthly fee ranging from €1,900 to €6,900 (approximately $2,300 to $8,300), based off volume of shipments, for logistics, warehousing and customer support services. Effective September 1, 2018, the fixed monthly fee was changed to €6,900 (approximately $7,900). Total expenses paid for the distribution center and logistics agreement was approximately $34,000 and $118,000, respectively, for the three and nine months ended September 30, 2018. Total expenses paid for the distribution center and logistics agreement was approximately $37,900 for the three and nine months ended September 30, 2017.

 

Co-Development Agreement

 

In September 2013, the Company executed a Co-Development Agreement with James R. Andrews, M.D. (“Dr. Andrews”) to further evaluate, test and advise on the development of products incorporating the use of the patented technology. In exchange for these services the Company is obligated to pay Dr. Andrews a royalty of 2% of revenues earned from applicable product sales over a period of 5 years. If Dr. Andrews is listed as inventor of any Improvement Patent on the DenerveX device during the 5-year term, he would continue to receive a 1% royalty after the 2% royalty expires for the duration of the effectiveness of the Improvement Patent.

 

The Company incurred approximately $4,500 and $13,100, respectively, in royalty expense under the co-development agreement for the three and nine months ended September 30, 2018, all of which was included in accounts payable at September 30, 2018. The Company incurred approximately $446 in royalty expense under the co-development agreement for the three and nine months ended September 30, 2017.

 

Patent Assignment and Contribution Agreements

 

On February 1, 2013, the Company issued 750,108 shares of common stock to Scott Haufe, M.D. (“Dr. Haufe”) pursuant to the terms of a Contribution and Royalty Agreement dated January 31, 2013 between the Company and Dr. Haufe. This agreement provides for the Company to pay Dr. Haufe royalties equal to 1% of revenues earned from sales of any and all products derived from the use of the DenerveX technology. Royalties are payable to Dr. Haufe within 30 days after the close of each calendar quarter based on actual cash collected from sales of applicable products. The royalty period expires on September 6, 2030.

 

The Company incurred approximately $2,300 and $6,600, respectively, in royalty expense under the Contribution and Royalty agreement for the three and nine months ended September 30, 2018, all of which was included in accounts payable at September 30, 2018. The Company incurred approximately $225 in royalty expense under the patent assignment and contribution agreement for the three and nine months ended September 30, 2017.

 

Streamline Inc. Asset Sale

 

The asset sale of Streamline Inc. resulted in the immediate receipt of $500,000 in cash, and a $150,000 note receivable that was due to the Company on January 1, 2018. The $150,000 note receivable represents the non-contingent portion of the receivables due from the sale. The Company received the short-term receivable on January 2, 2018.

 

The terms of the sale also required that for each of the calendar years ending December 31, 2018 and December 31, 2019 (each such calendar year, a “Contingent Period”), a contingent payment in cash (each, a “Contingent Payment”) equal to five percent (5%) of the total net sales received by the acquiring party from the sale of “IV suspension system” products in excess of 100 units during each Contingent Period. Each such Contingent Payment is payable to the Company by the acquiring party by no later than March 31st of the subsequent year; provided, however, that the total aggregate amount of all Contingent Payments owed by the acquiring party to the Company for all Contingent Periods will not exceed $850,000. The Company is yet to receive any Contingent Payments and has no reason to expect it will receive any Contingent Payments.

 

The Company did not incur any Streamline related expenses for the three and nine months ended September 30, 2018. The Company recorded a nominal amount in Streamline related expenses for the three and nine months ended September 30, 2017.