• Filing Date: 2019-08-14
  • Form Type: 10-Q
  • Description: Quarterly report
v3.19.2
Document and Entity Information - shares
3 Months Ended
Jun. 30, 2019
Aug. 31, 2019
Document and Entity Information    
Entity Registrant Name ENCISION INC  
Entity Central Index Key 0000930775  
Document Type 10-Q  
Document Period End Date Jun. 30, 2019  
Amendment Flag false  
Current Fiscal Year End Date --03-31  
Entity's Reporting Status Current Yes  
Entity Filer Category Non-accelerated Filer  
Entity Emerging Growth Company false  
Entity Small Business true  
Entity Shell company false  
Entity File Number 001-11789  
Entity Incorporation, State Country Code CO  
Entity Interactive Data Current Yes  
Entity Common Stock, Shares Outstanding   11,558,355
Document Fiscal Year Focus 2020  
Document Fiscal Period Focus Q1  
v3.19.2
Condensed Balance Sheets (Unaudited) - USD ($)
Jun. 30, 2019
Mar. 31, 2019
Current assets:    
Cash and cash equivalents $ 135,569 $ 273,348
Restricted cash 0 25,000
Accounts receivable, net of allowance for doubtful accounts of $20,000 at June 30, 2019 and $26,000 at March 31, 2019 1,021,341 1,009,106
Inventories, net of reserve for obsolescence of $40,000 at June 30, 2019 and $50,000 at March 31, 2019 1,377,719 1,472,543
Prepaid expenses 132,583 130,016
Total current assets 2,667,212 2,910,013
Equipment, at cost:    
Furniture, fixtures and equipment 3,082,315 3,061,329
Accumulated depreciation (2,848,095) (2,811,761)
Equipment, net 234,220 249,568
Right of use asset 1,181,590 0
Patents, net of accumulated amortization of $272,526 at June 30, 2019 and $266,028 at March 31, 2019 242,886 248,579
Other assets 19,548 19,548
TOTAL ASSETS 4,345,456 3,427,708
Current liabilities:    
Accounts payable 437,918 578,956
Accrued compensation 208,946 295,875
Other accrued liabilities 138,007 126,434
Line of credit 150,000 0
Accrued lease liability 158,721 0
Total current liabilities 1,093,592 1,001,265
Long-term liability:    
Accrued lease liability 1,074,434 0
Deferred rent 0 74,821
Total liabilities 2,168,026 1,076,086
Shareholders' equity:    
Preferred stock, no par value: 10,000,000 shares authorized; none issued and outstanding 0 0
Common stock and additional paid-in capital, no par value: 100,000,000 shares authorized; 11,558,355 shares issued and outstanding at June 30, 2019 and March 31, 2019 24,209,471 24,201,769
Accumulated (deficit) (22,032,041) (21,850,147)
Total shareholders' equity 2,177,430 2,351,622
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 4,345,456 $ 3,427,708
v3.19.2
Condensed Balance Sheets (Unaudited) (Parenthetical) - USD ($)
Jun. 30, 2019
Mar. 31, 2019
Statement of Financial Position [Abstract]    
Accounts receivable, allowance for doubtful accounts (in dollars) $ 20,000 $ 26,000
Inventories, reserve for obsolescence (in dollars) 40,000 50,000
Accumulated amortization $ 272,526 $ 266,028
Preferred stock, par value $ 0 $ 0
Preferred stock, shares authorized 10,000,000 10,000,000
Preferred stock, shares issued 0 0
Preferred stock, shares outstanding 0 0
Common stock and additional paid-in capital, par value $ 0 $ 0
Common stock and additional paid-in capital, shares authorized 100,000,000 100,000,000
Common stock and additional paid-in capital, shares issued 11,558,355 11,558,355
Common stock and additional paid-in capital, shares outstanding 11,558,355 11,558,355
v3.19.2
Condensed Statements of Operations (Unaudited) - USD ($)
3 Months Ended
Jun. 30, 2019
Jun. 30, 2018
Income Statement [Abstract]    
NET REVENUE $ 1,928,575 $ 2,404,292
COST OF REVENUE 995,604 1,103,177
GROSS PROFIT 932,971 1,301,115
OPERATING EXPENSES:    
Sales and marketing 530,505 775,785
General and administrative 345,600 320,260
Research and development 236,144 166,672
Total operating expenses 1,112,249 1,262,717
OPERATING INCOME (LOSS) (179,278) 38,398
Interest expense, net (2,783) (18,450)
Other income (expense), net 167 (1,365)
Interest expense and other income (expense), net (2,616) (19,815)
INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES (181,894) 18,583
Provision for income taxes 0 0
NET INCOME (LOSS) $ (181,894) $ 18,583
Net income (loss) per share - basic and Diluted $ (0.02) $ 0.00
Weighted average shares - basic 11,558,355 10,683,355
Weighted average shares - diluted 11,558,355 10,704,655
v3.19.2
Condensed Statements of Cash Flows (Unaudited) - USD ($)
3 Months Ended
Jun. 30, 2019
Jun. 30, 2018
Operating activities:    
Net income (loss) $ (181,894) $ 18,583
Adjustments to reconcile net income to net cash used in operating activities:    
Depreciation and amortization 42,832 47,587
Share-based compensation expense 7,702 12,093
(Recovery from) doubtful accounts, net (6,000) (3,000)
(Recovery from) inventory obsolescence, net (10,000) 0
Changes in operating assets and liabilities:    
Right of use asset, net (23,256) 0
Accounts receivable (6,235) (284,959)
Inventories 104,824 201,506
Prepaid expenses and other assets (2,567) (44,033)
Accounts payable (141,038) (16,870)
Accrued compensation and other accrued liabilities (75,356) (72,953)
Net cash (used in) operating activities (290,988) (142,046)
Investing activities:    
Acquisition of property and equipment (20,986) (5,288)
Patent costs (805) (1,171)
Net cash (used in) investing activities (21,791) (6,459)
Financing activities:    
Borrowings from credit facility, net change 150,000 87,110
Net cash generated by financing activities 150,000 87,110
Net (decrease) in cash, cash equivalents, and restricted cash (162,779) (61,395)
Cash, cash equivalents, and restricted cash beginning of period 298,348 139,538
Cash, cash equivalents, and restricted cash end of period 135,569 78,143
Supplemental disclosure:    
Right of use asset 1,214,983 0
Accrued lease liability $ 1,279,675 $ 0
v3.19.2
ORGANIZATION AND NATURE OF BUSINESS
3 Months Ended
Jun. 30, 2019
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
ORGANIZATION AND NATURE OF BUSINESS

Note 1. ORGANIZATION AND NATURE OF BUSINESS

 

Encision Inc. is a medical device company that designs, develops, manufactures and markets patented surgical instruments that provide greater safety to, and saves lives of, patients undergoing minimally-invasive surgery. We believe that our patented AEM® (Active Electrode Monitoring) surgical instrument technology is changing the marketplace for electrosurgical devices and instruments by providing a solution to a patient safety risk in laparoscopic surgery. Our sales to date have been made principally in the United States.

 

We have an accumulated deficit of $22,032,041 at June 30, 2019. A significant portion of our operating funds have been provided by issuances of our common stock and warrants, a line of credit, and the exercise of stock options to purchase our common stock. Shareholders’ equity decreased by $174,192 as a result of our loss of $181,894, and increased as a result of share-based compensation of $7,702. Should our liquidity be diminished in the future because of operating losses, we may be required to seek additional capital.

 

Our strategic marketing and sales plan is designed to expand the use of our products in surgically active hospitals and surgery centers in the United States.

v3.19.2
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
3 Months Ended
Jun. 30, 2019
Accounting Policies [Abstract]  
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Note 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation. The condensed interim financial statements included herein have been prepared by us, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles accepted in the United States (“GAAP”) have been condensed or omitted pursuant to such rules and regulations, although we believe that the disclosures made are adequate to make the information presented not misleading. The condensed interim financial statements and notes thereto should be read in conjunction with the financial statements and the notes thereto included in our Annual Report on Form 10-K for the fiscal year ended March 31, 2019, filed on June 14, 2019.

 

The accompanying condensed interim financial statements have been prepared, in all material respects, in conformity with the standards of accounting measurements and reflect, in the opinion of management, all adjustments necessary to summarize fairly the financial position and results of operations for such periods in accordance with GAAP. All adjustments are of a normal recurring nature. The results of operations for the most recent interim period are not necessarily indicative of the results to be expected for the full year.

 

We had a net loss of $181,894 for the fiscal quarter ended June 30, 2019. At June 30, 2019, we had cash of $135,569, borrowings of $150,000 and $850,000 available under our line of credit. Working capital was $1,573,620, a decrease of $335,128 from March 31, 2019. We used $290,988 of cash in the fiscal quarter ended June 30, 2019, primarily as a result of our loss and reduction of accounts payable. The principal reason for our loss for the fiscal year ended March 31, 2019 was higher material costs as a result of the U.S. governmental tariffs. These facts and circumstances were initial indicators that created uncertainty about our ability to continue as a going concern. To address this uncertainty, management has developed plans to ensure that we have the working capital necessary to fund operations. In July 2019, we reduced personnel and departmental costs by more than $1 million annualized. We expect that the $1 million annualized cost reductions will return us, starting in the near-term, to profitability. We have a new line of credit (see Note 7), for up to $1 million, restricted by eligible receivables. Management concludes that it is probable that our cash resources and line of credit will be sufficient to meet our cash requirements for twelve months from the issuance of the consolidated financial statements. In the event that the governmental tariffs are reduced or eliminated then we expect that the higher material costs that we experienced will be reduced. We are increasing our pricing on products to mitigate somewhat our higher material costs. Therefore, the accompanying condensed financial statements have been prepared assuming that we will continue as a going concern.

 

Use of Estimates in the Preparation of Financial Statements. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions. Such estimates and assumptions affect the reported amounts of assets and liabilities as well as disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of sales and expense during the reporting period. Actual results could differ from those estimates.

 

Cash and Cash Equivalents. For purposes of reporting cash flows, we consider all cash and highly liquid investments with an original maturity of three months or less to be cash equivalents. Restricted cash is cash that was deposited to obtain a letter of credit for our importing and exporting activities.

 

Fair Value of Financial Instruments. Our financial instruments consist of cash, cash equivalents, restricted cash, short-term trade receivables, payables and a line of credit. The carrying values of cash, cash equivalents, restricted cash short-term trade receivables, payables and line of credit approximate their fair value due to their short maturities.

 

Concentration of Credit Risk. Financial instruments, which potentially subject us to concentrations of credit risk, consist of cash and cash equivalents, accounts receivable and a line of credit. From time to time, the amount of cash on deposit with financial institutions may exceed the $250,000 federally insured limit at June 30, 2019. We believe that cash on deposit that exceeds $250,000 with financial institutions is financially sound and the risk of loss is minimal.

 

We have no significant off-balance sheet concentrations of credit risk such as foreign exchange contracts, options contracts or other foreign hedging arrangements. We maintain the majority of our cash balances with one financial institution in the form of demand deposits.

 

Accounts receivable are typically unsecured and are derived from transactions with and from entities in the healthcare industry primarily located in the United States. Accordingly, we may be exposed to credit risk generally associated with the healthcare industry. We maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. The net accounts receivable balance at June 30, 2019 of $1,021,341 and at March 31, 2019 of $1,009,106 included no more than 8% from any one customer.

 

Inventories. Inventories are stated at the lower of cost (first-in, first-out basis) or net realizable value. We reduce inventory for estimated obsolete or unmarketable inventory equal to the difference between the cost of inventory and the net realizable value based upon assumptions about future demand and market conditions. If actual market conditions are less favorable than those projected by management, additional inventory write-downs may be required. At June 30, 2019 and March 31, 2019, inventory consisted of the following:

 

   June 30, 2019  March 31, 2019
Raw materials  $1,148,006   $1,063,780 
Finished goods   269,713    458,763 
Total gross inventories   1,417,719    1,522,543 
Less reserve for obsolescence   (40,000)   (50,000)
Total net inventories  $1,377,719   $1,472,543 

 

Property and Equipment. Property and equipment are stated at cost, with depreciation computed over the estimated useful lives of the assets, generally five to seven years. We use the straight-line method of depreciation for property and equipment. Leasehold improvements are depreciated over the shorter of the remaining lease term or the estimated useful life of the asset. Maintenance and repairs are expensed as incurred and major additions, replacements and improvements are capitalized.

 

Long-Lived Assets. Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. A long-lived asset is considered impaired when estimated future cash flows related to the asset, undiscounted and without interest, are insufficient to recover the carrying amount of the asset. If deemed impaired, the long-lived asset is reduced to its estimated fair value. Long-lived assets to be disposed of are reported at the lower of their carrying amount or estimated fair value less cost to sell.

 

Patents. The costs of applying for patents are capitalized and amortized on a straight-line basis over the lesser of the patent’s economic or legal life (20 years from the date of application in the United States). Capitalized costs are expensed if patents are not issued. We review the carrying value of our patents periodically to determine whether the patents have continuing value and such reviews could result in the conclusion that the recorded amounts have been impaired.

 

Income Taxes. We account for income taxes under the provisions of FASB Accounting Standards Codification (“ASC”) Topic 740, “Accounting for Income Taxes” (“ASC 740”). ASC 740 requires recognition of deferred income tax assets and liabilities for the expected future income tax consequences, based on enacted tax laws, of temporary differences between the financial reporting and tax bases of assets and liabilities. ASC 740 also requires recognition of deferred tax assets for the expected future tax effects of all deductible temporary differences, loss carryforwards and tax credit carryforwards. Deferred tax assets are then reduced, if deemed necessary, by a valuation allowance for the amount of any tax benefits, which, more likely than not based on current circumstances, are not expected to be realized. As a result, no provision for income tax is reflected in the accompanying statements of operations. Should we achieve sufficient, sustained income in the future, we may conclude that some or all of the valuation allowance should be reversed. We are required to make many subjective assumptions and judgments regarding our income tax exposures. At June 30, 2019, we had no unrecognized tax benefits, which would affect the effective tax rate if recognized and had no accrued interest, or penalties related to uncertain tax positions.

 

Revenue Recognition. We record revenue at a single point in time, when control is transferred to the customer, which is consistent with past practice. We will continue to apply our current business processes, policies, systems and controls to support recognition and disclosure. Our shipping policy is FOB Shipping Point. We recognize revenue from sales to stocking distributors when there is no right of return, other than for normal warranty claims. We have no ongoing obligations related to product sales, except for normal warranty obligations. We evaluated the requirement to disaggregate revenue, and concluded that substantially all of its revenue comes from multiple products within a line of medical devices.

 

Research and Development Expenses. We expense research and development costs for products and processes as incurred.

 

Stock-Based Compensation. Stock-based compensation is presented in accordance with the guidance of ASC Topic 718, “Compensation – Stock Compensation” (“ASC 718”). Under the provisions of ASC 718, companies are required to estimate the fair value of share-based payment awards on the date of grant using an option-pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service periods in our statements of operations.

 

Stock-based compensation expense recognized under ASC 718 for the three months ended June 30, 2019 and 2018 was $7,702 and $12,093, respectively, which consisted of stock-based compensation expense related to grants of employee stock options and restricted stock units (“RSUs”).

 

Segment Reporting. We have concluded that we have one operating segment.

 

Recent Accounting Pronouncements. We have reviewed all recently issued accounting pronouncements.

 

ASU No. 2014-09 (ASC 606), Revenue from Contracts with Customers became effective for us beginning April 1, 2018, and adopted the new accounting standard using the modified retrospective transition approach. We record revenue under ASC 606 at a single point in time, when control is transferred to the customer, which is consistent with past practice. We will continue to apply our current business processes, policies, systems and controls to support recognition and disclosure under the new standard. Based on the results of the evaluation, we have determined that the adoption of the new standard presents no material impact on our financial statements.

 

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) ("ASU 2016-02"), which modified lease accounting for both lessees and lessors to increase transparency and comparability by recognizing lease assets and lease liabilities by lessees for those leases classified as operating leases under previous accounting standards and disclosing key information about leasing arrangements. Within the opening balances for the fiscal year beginning April 1, 2019, we recognized leased assets and corresponding liabilities in other long-term assets of $1,214,983.

v3.19.2
BASIC AND DILUTED INCOME AND LOSS PER COMMON SHARE
3 Months Ended
Jun. 30, 2019
Earnings Per Share [Abstract]  
BASIC AND DILUTED INCOME AND LOSS PER COMMON SHARE

Note 3. Basic and Diluted Income and Loss per Common Share

 

We report both basic and diluted net income (loss) per share. Basic net income or loss per common share is computed by dividing net income or loss for the period by the weighted average number of common shares outstanding for the period. Diluted net income or loss per common share is computed by dividing the net income or loss for the period by the weighted average number of common and potential common shares outstanding during the period if the effect of the potential common shares is dilutive. The shares used in the calculation of dilutive potential common shares exclude options and RSUs to purchase shares where the exercise price was greater than the average market price of common shares for the period.

 

The following table presents the calculation of basic and diluted net loss per share:

 

   Three Months Ended
   June 30, 2019  June 30, 2018
Net income (loss)  $(181,894)  $18,583 
Weighted-average shares — basic   11,558,355    10,683,355 
Effect of dilutive potential common shares   —      21,300 
Weighted-average shares — diluted   11,558,355    10,704,655 
Net income (loss) per share — basic  $(0.02)  $0.00 
Net income (loss) per share — diluted  $(0.02)  $0.00 
Antidilutive employee stock options and RSUs   980,286    986,236 
           
v3.19.2
COMMITMENTS AND CONTINGENCIES
3 Months Ended
Jun. 30, 2019
Commitments and Contingencies Disclosure [Abstract]  
COMMITMENTS AND CONTINGENCIES


Note 4. COMMITMENTS AND CONTINGENCIES

 

Effective November 9, 2018, we extended our noncancelable lease agreement through July 31, 2024 for our facilities at 6797 Winchester Circle, Boulder, Colorado. The lease includes base rent abatement for the first two months, or $55,583, and $145,000 of leasehold improvements granted by the landlord.

 

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) ("ASU 2016-02"), which modified lease accounting for both lessees and lessors to increase transparency and comparability by recognizing lease assets and lease liabilities by lessees for those leases classified as either finance or operating leases under previous accounting standards and disclosing key information about leasing arrangements. We adopted Topic 842 on April 1, 2019, using the alternative modified transition method, which requires a cumulative effect adjustment, if any, to the opening balance of retained earnings to be recognized on the date of adoption with prior periods not restated. There was no cumulative effect adjustment recorded on April 1, 2019. Within the opening balances for the fiscal year beginning April 1, 2019, we will recognize leased assets and corresponding liabilities in other long-term assets of $1,214,983. This includes two months of rent abatements. The primary impact for us was the balance sheet recognition of right-of-use (“ROU”) assets and lease liabilities for operating leases as a lessee.

 

We determine if an arrangement contains a lease at inception. We currently do not have any finance leases. Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. ROU assets also include any initial direct costs incurred and any lease payments made at or before the lease commencement date, less lease incentives received. We use our incremental borrowing rate based on the information available at the commencement date in determining the lease liabilities as our leases do not provide an implicit rate. Lease expense is recognized on a straight-line basis over the lease term.

 

The minimum future lease payment, by fiscal year, as of June 30, 2019 is as follows:

 

Fiscal Year  Amount
 2020 (9 months remaining)   $199,913 
 2021    343,167 
 2022    357,667 
 2023    372,167 
 2024    386,667 
 2025    130,500 
 Total   $1,790,081 

 

On July 31, 2018, we signed a new line of credit agreement with Bank of America Merrill Lynch. The facility provides for up to $1 million revolving line of credit. The interest rate is a rate per year equal to the LIBOR Daily Floating Rate plus 2.75 percentage points. There is a minimum quarterly EBITDA covenant and a minimum Collateral Coverage ratio of 2. Minimum Collateral Coverage is the ratio of gross accounts receivable plus inventory to the line of credit commitment. As of June 30, 2019, we had $150,000 of borrowings from the credit facility and had an additional $850,000 available to borrow. For the quarter ended June 30, 2019, we were not in compliance with the minimum quarterly EBITDA covenant. This line was extended to August 31, 2019 and was replaced by a loan and security agreement with Crestmark Bank, see below.

 

On August 9, 2019, we entered into a loan and security agreement with Crestmark Bank, which replaced the Bank of America Merrill Lynch credit agreement. The loan is due on demand and has no financial covenants. Under the agreement, we were provided with a line of credit that is not to exceed the lesser of $1,000,000 or 85% of eligible accounts receivable. The interest rate is prime rate plus 1.5%, with a floor of 6.75%, plus a monthly maintenance fee of 0.4%, based on the average monthly loan balance. Interest is charged on a minimum loan balance of $500,000, a loan fee of 1% annually, and an exit fee of 3%, 2% and 1% during years one, two and three, respectively.

Aside from the operating lease, we do not have any material contractual commitments requiring settlement in the future.

 

We are subject to regulation by the United States Food and Drug Administration (“FDA”). The FDA provides regulations governing the manufacture and sale of our products and regularly inspects us and other manufacturers to determine compliance with these regulations. We believe that we were in substantial compliance with all known regulations at June 30, 2019. FDA inspections are conducted periodically at the discretion of the FDA. Our latest inspection by the FDA occurred in October 2016.

v3.19.2
SHARE-BASED COMPENSATION
3 Months Ended
Jun. 30, 2019
Share-based Payment Arrangement [Abstract]  
SHARE-BASED COMPENSATION

Note 5. SHARE-BASED COMPENSATION

 

The provisions of ASC 718-10-55 requires the measurement and recognition of compensation expense for all share-based payment awards made to our employees and directors, including employee stock options and RSUs, based on estimated fair values. The following table summarizes stock-based compensation expense related to employee stock options, RSUs and employee stock purchases for the three months ended June 30, 2019 and 2018, which was allocated as follows:

 

   Three Months Ended
   June 30, 2019  June 30, 2018
Cost of sales  $681   $601 
Sales and marketing   790    1,296 
General and administrative   5,622    9,592 
Research and development   609    604 
Stock-based compensation expense  $7,702   $12,093 

 

Share-based compensation cost for stock options is measured at the grant date, based on the fair value as calculated by the Black-Scholes-Merton ("BSM") option-pricing model. The BSM option-pricing model requires the use of actual employee exercise behavior data and the application of a number of assumptions, including expected volatility, risk-free interest rate and expected dividends. There were 40,000 stock options granted and 50,000 stock options forfeited during the three months ended June 30, 2019. Share-based compensation cost for RSUs is measured based on the closing fair market value of the Company's common stock on the date of grant.

 

As of June 30, 2019, $131,000 of total unrecognized compensation costs related to nonvested stock options is expected to be recognized over a period of five years.

v3.19.2
RELATED PARTY TRANSACTION
3 Months Ended
Jun. 30, 2019
Related Party Transactions [Abstract]  
RELATED PARTY TRANSACTION

Note 6. RELATED PARTY TRANSACTION

 

We paid consulting fees of $20,094 and $20,069 to an entity owned by one of our directors during the three months ended June 30, 2019 and 2018, respectively.

v3.19.2
SUBSEQUENT EVENTS
3 Months Ended
Jun. 30, 2019
Subsequent Events [Abstract]  
SUBSEQUENT EVENTS

Note 7. SUBSEQUENT EVENTS

 

We evaluated all of our activity as of the date the condensed interim financial statements were issued and concluded that, except for the item that follows, no subsequent events have occurred that would require recognition in our financial statements or disclosed in the notes to our condensed interim financial statements. On August 9, 2019, we entered into a loan and security agreement with Crestmark Bank, which replaced the Bank of America Merrill Lynch credit agreement. The loan is due on demand and has no financial covenants. Under the agreement, we were provided with a line of credit that is not to exceed the lesser of $1,000,000 or 85% of eligible accounts receivable. The interest rate is prime rate plus 1.5%, with a floor of 6.75%, plus a monthly maintenance fee of 0.4%, based on the average monthly loan balance. Interest is charged on a minimum loan balance of $500,000, a loan fee of 1% annually, and an exit fee of 3%, 2% and 1% during years one, two and three, respectively.

v3.19.2
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)
3 Months Ended
Jun. 30, 2019
Accounting Policies [Abstract]  
Basis of Presentation

Basis of Presentation. The condensed interim financial statements included herein have been prepared by us, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles accepted in the United States (“GAAP”) have been condensed or omitted pursuant to such rules and regulations, although we believe that the disclosures made are adequate to make the information presented not misleading. The condensed interim financial statements and notes thereto should be read in conjunction with the financial statements and the notes thereto included in our Annual Report on Form 10-K for the fiscal year ended March 31, 2019, filed on June 14, 2019.

 

The accompanying condensed interim financial statements have been prepared, in all material respects, in conformity with the standards of accounting measurements and reflect, in the opinion of management, all adjustments necessary to summarize fairly the financial position and results of operations for such periods in accordance with GAAP. All adjustments are of a normal recurring nature. The results of operations for the most recent interim period are not necessarily indicative of the results to be expected for the full year.

 

We had a net loss of $181,894 for the fiscal quarter ended June 30, 2019. At June 30, 2019, we had cash of $135,569, borrowings of $150,000 and $850,000 available under our line of credit. Working capital was $1,573,620, a decrease of $335,128 from March 31, 2019. We used $290,988 of cash in the fiscal quarter ended June 30, 2019, primarily as a result of our loss and reduction of accounts payable. The principal reason for our loss for the fiscal year ended March 31, 2019 was higher material costs as a result of the U.S. governmental tariffs. These facts and circumstances were initial indicators that created uncertainty about our ability to continue as a going concern. To address this uncertainty, management has developed plans to ensure that we have the working capital necessary to fund operations. In July 2019, we reduced personnel and departmental costs by more than $1 million annualized. We expect that the $1 million annualized cost reductions will return us, starting in the near-term, to profitability. We have a new line of credit (see Note 7), for up to $1 million, restricted by eligible receivables. Management concludes that it is probable that our cash resources and line of credit will be sufficient to meet our cash requirements for twelve months from the issuance of the consolidated financial statements. In the event that the governmental tariffs are reduced or eliminated then we expect that the higher material costs that we experienced will be reduced. We are increasing our pricing on products to mitigate somewhat our higher material costs. Therefore, the accompanying condensed financial statements have been prepared assuming that we will continue as a going concern.

Use of Estimates in the Preparation of Financial Statements

Use of Estimates in the Preparation of Financial Statements. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions. Such estimates and assumptions affect the reported amounts of assets and liabilities as well as disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of sales and expense during the reporting period. Actual results could differ from those estimates.

Cash and Cash Equivalents

Cash and Cash Equivalents. For purposes of reporting cash flows, we consider all cash and highly liquid investments with an original maturity of three months or less to be cash equivalents. Restricted cash is cash that was deposited to obtain a letter of credit for our importing and exporting activities.

Fair Value of Financial Instruments

Fair Value of Financial Instruments. Our financial instruments consist of cash, cash equivalents, restricted cash, short-term trade receivables, payables and a line of credit. The carrying values of cash, cash equivalents, restricted cash short-term trade receivables, payables and line of credit approximate their fair value due to their short maturities.

Concentration of Credit Risk

Concentration of Credit Risk. Financial instruments, which potentially subject us to concentrations of credit risk, consist of cash and cash equivalents, accounts receivable and a line of credit. From time to time, the amount of cash on deposit with financial institutions may exceed the $250,000 federally insured limit at June 30, 2019. We believe that cash on deposit that exceeds $250,000 with financial institutions is financially sound and the risk of loss is minimal.

 

We have no significant off-balance sheet concentrations of credit risk such as foreign exchange contracts, options contracts or other foreign hedging arrangements. We maintain the majority of our cash balances with one financial institution in the form of demand deposits.

 

Accounts receivable are typically unsecured and are derived from transactions with and from entities in the healthcare industry primarily located in the United States. Accordingly, we may be exposed to credit risk generally associated with the healthcare industry. We maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. The net accounts receivable balance at June 30, 2019 of $1,021,341 and at March 31, 2019 of $1,009,106 included no more than 8% from any one customer.

Inventories

Inventories. Inventories are stated at the lower of cost (first-in, first-out basis) or net realizable value. We reduce inventory for estimated obsolete or unmarketable inventory equal to the difference between the cost of inventory and the net realizable value based upon assumptions about future demand and market conditions. If actual market conditions are less favorable than those projected by management, additional inventory write-downs may be required. At June 30, 2019 and March 31, 2019, inventory consisted of the following:

 

   June 30, 2019  March 31, 2019
Raw materials  $1,148,006   $1,063,780 
Finished goods   269,713    458,763 
Total gross inventories   1,417,719    1,522,543 
Less reserve for obsolescence   (40,000)   (50,000)
Total net inventories  $1,377,719   $1,472,543 
Property and Equipment

Property and Equipment. Property and equipment are stated at cost, with depreciation computed over the estimated useful lives of the assets, generally five to seven years. We use the straight-line method of depreciation for property and equipment. Leasehold improvements are depreciated over the shorter of the remaining lease term or the estimated useful life of the asset. Maintenance and repairs are expensed as incurred and major additions, replacements and improvements are capitalized.

Long-Lived Assets

Long-Lived Assets. Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. A long-lived asset is considered impaired when estimated future cash flows related to the asset, undiscounted and without interest, are insufficient to recover the carrying amount of the asset. If deemed impaired, the long-lived asset is reduced to its estimated fair value. Long-lived assets to be disposed of are reported at the lower of their carrying amount or estimated fair value less cost to sell.

Patents

Patents. The costs of applying for patents are capitalized and amortized on a straight-line basis over the lesser of the patent’s economic or legal life (20 years from the date of application in the United States). Capitalized costs are expensed if patents are not issued. We review the carrying value of our patents periodically to determine whether the patents have continuing value and such reviews could result in the conclusion that the recorded amounts have been impaired.

Income Taxes

Income Taxes. We account for income taxes under the provisions of FASB Accounting Standards Codification (“ASC”) Topic 740, “Accounting for Income Taxes” (“ASC 740”). ASC 740 requires recognition of deferred income tax assets and liabilities for the expected future income tax consequences, based on enacted tax laws, of temporary differences between the financial reporting and tax bases of assets and liabilities. ASC 740 also requires recognition of deferred tax assets for the expected future tax effects of all deductible temporary differences, loss carryforwards and tax credit carryforwards. Deferred tax assets are then reduced, if deemed necessary, by a valuation allowance for the amount of any tax benefits, which, more likely than not based on current circumstances, are not expected to be realized. As a result, no provision for income tax is reflected in the accompanying statements of operations. Should we achieve sufficient, sustained income in the future, we may conclude that some or all of the valuation allowance should be reversed. We are required to make many subjective assumptions and judgments regarding our income tax exposures. At June 30, 2019, we had no unrecognized tax benefits, which would affect the effective tax rate if recognized and had no accrued interest, or penalties related to uncertain tax positions.

Revenue Recognition

Revenue Recognition. We record revenue at a single point in time, when control is transferred to the customer, which is consistent with past practice. We will continue to apply our current business processes, policies, systems and controls to support recognition and disclosure. Our shipping policy is FOB Shipping Point. We recognize revenue from sales to stocking distributors when there is no right of return, other than for normal warranty claims. We have no ongoing obligations related to product sales, except for normal warranty obligations. We evaluated the requirement to disaggregate revenue, and concluded that substantially all of its revenue comes from multiple products within a line of medical devices.

Research and Development Expenses

Research and Development Expenses. We expense research and development costs for products and processes as incurred.

Stock-Based Compensation

Stock-Based Compensation. Stock-based compensation is presented in accordance with the guidance of ASC Topic 718, “Compensation – Stock Compensation” (“ASC 718”). Under the provisions of ASC 718, companies are required to estimate the fair value of share-based payment awards on the date of grant using an option-pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service periods in our statements of operations.

 

Stock-based compensation expense recognized under ASC 718 for the three months ended June 30, 2019 and 2018 was $7,702 and $12,093, respectively, which consisted of stock-based compensation expense related to grants of employee stock options and restricted stock units (“RSUs”).

Segment Reporting

Segment Reporting. We have concluded that we have one operating segment.

Recent Accounting Pronouncements

Recent Accounting Pronouncements. We have reviewed all recently issued accounting pronouncements.

 

ASU No. 2014-09 (ASC 606), Revenue from Contracts with Customers became effective for us beginning April 1, 2018, and adopted the new accounting standard using the modified retrospective transition approach. We record revenue under ASC 606 at a single point in time, when control is transferred to the customer, which is consistent with past practice. We will continue to apply our current business processes, policies, systems and controls to support recognition and disclosure under the new standard. Based on the results of the evaluation, we have determined that the adoption of the new standard presents no material impact on our financial statements.

 

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) ("ASU 2016-02"), which modified lease accounting for both lessees and lessors to increase transparency and comparability by recognizing lease assets and lease liabilities by lessees for those leases classified as operating leases under previous accounting standards and disclosing key information about leasing arrangements. Within the opening balances for the fiscal year beginning April 1, 2019, we recognized leased assets and corresponding liabilities in other long-term assets of $1,214,983.

v3.19.2
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables)
3 Months Ended
Jun. 30, 2019
Accounting Policies [Abstract]  
Schedule of inventory
   June 30, 2019  March 31, 2019
Raw materials  $1,148,006   $1,063,780 
Finished goods   269,713    458,763 
Total gross inventories   1,417,719    1,522,543 
Less reserve for obsolescence   (40,000)   (50,000)
Total net inventories  $1,377,719   $1,472,543 
v3.19.2
BASIC AND DILUTED INCOME AND LOSS PER COMMON SHARE (Tables)
3 Months Ended
Jun. 30, 2019
Earnings Per Share [Abstract]  
Schedule of calculation of basic and diluted net loss per share
   Three Months Ended
   June 30, 2019  June 30, 2018
Net income (loss)  $(181,894)  $18,583 
Weighted-average shares — basic   11,558,355    10,683,355 
Effect of dilutive potential common shares   —      21,300 
Weighted-average shares — diluted   11,558,355    10,704,655 
Net income (loss) per share — basic  $(0.02)  $0.00 
Net income (loss) per share — diluted  $(0.02)  $0.00 
Antidilutive employee stock options and RSUs   980,286    986,236 
           
v3.19.2
COMMITMENTS AND CONTINGENCIES (Tables)
3 Months Ended
Jun. 30, 2019
Commitments and Contingencies Disclosure [Abstract]  
Schedule of minimum future lease payments, by fiscal year
Fiscal Year  Amount
 2020 (9 months remaining)   $199,913 
 2021    343,167 
 2022    357,667 
 2023    372,167 
 2024    386,667 
 2025    130,500 
 Total   $1,790,081 
v3.19.2
SHARE-BASED COMPENSATION (Tables)
3 Months Ended
Jun. 30, 2019
Share-based Payment Arrangement [Abstract]  
Schedule of stock-based compensation expense related to employee stock options
   Three Months Ended
   June 30, 2019  June 30, 2018
Cost of sales  $681   $601 
Sales and marketing   790    1,296 
General and administrative   5,622    9,592 
Research and development   609    604 
Stock-based compensation expense  $7,702   $12,093 
v3.19.2
ORGANIZATION AND NATURE OF BUSINESS (Details Narrative) - USD ($)
3 Months Ended
Jun. 30, 2019
Jun. 30, 2018
Mar. 31, 2019
Organization, Consolidation and Presentation of Financial Statements [Abstract]      
Accumulated deficit $ (22,032,041)   $ (21,850,147)
Net loss (181,894) $ 18,583  
Decrease in shareholders' equity 174,192    
Share-based compensation $ 7,702    
v3.19.2
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) - USD ($)
Jun. 30, 2019
Mar. 31, 2019
Inventories    
Raw materials $ 1,148,006 $ 1,063,780
Finished goods 269,713 458,763
Total gross inventories 1,417,719 1,522,543
Less reserve for obsolescence (40,000) (50,000)
Total net inventories $ 1,377,719 $ 1,472,543
v3.19.2
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details Narrative) - USD ($)
3 Months Ended
Jun. 30, 2019
Jun. 30, 2018
Apr. 02, 2019
Mar. 31, 2019
Property, Plant and Equipment [Line Items]        
Net loss $ (181,894) $ 18,583    
Cash 135,569      
Amount of borrowings 150,000      
Amount available to borrow 850,000      
Working capital 1,573,620      
Net cash provided by (used in) operating activities (290,988) (142,046)    
Federally insured limit 250,000      
Accounts Receivable 1,021,341     $ 1,009,106
Stock-based compensation expense 7,702 $ 12,093    
Unrecognized tax benefits $ 0      
Other long-term assets     $ 1,214,983  
Minimum [Member]        
Property, Plant and Equipment [Line Items]        
Estimated useful lives of assets 5 years      
Maximum [Member]        
Property, Plant and Equipment [Line Items]        
Estimated useful lives of assets 7 years      
v3.19.2
BASIC AND DILUTED INCOME AND LOSS PER COMMON SHARE (Details) - USD ($)
3 Months Ended
Jun. 30, 2019
Jun. 30, 2018
Earnings Per Share [Abstract]    
Net income (loss) $ (181,894) $ 18,583
Weighted-average shares - basic 11,558,355 10,683,355
Effect of dilutive potential common shares 0 21,300
Weighted-average shares - diluted 11,558,355 10,704,655
Net income (loss) per share-basic $ (0.02) $ .00
Net income (loss) per share-diluted $ (0.02) $ .00
Antidilutive employee stock options and RSUs 980,286 986,236
v3.19.2
COMMITMENTS AND CONTINGENCIES (Details)
Jun. 30, 2019
USD ($)
Minimum future lease payments, by fiscal year  
2020 (9 months remaining) $ 199,913
2021 343,167
2022 357,667
2023 372,167
2024 386,667
2025 130,500
Total $ 1,790,081
v3.19.2
COMMITMENTS AND CONTINGENCIES (Details Narrative) - USD ($)
Aug. 09, 2019
Jun. 30, 2019
Amount of borrowings   $ 150,000
Amount available to borrow   $ 850,000
Subsequent Event [Member]    
Loan description The loan is due on demand and has no financial covenants. Under the agreement, we were provided with a line of credit that is not to exceed the lesser of $1,000,000 or 85% of eligible accounts receivable. The interest rate is prime rate plus 1.5%, with a floor of 6.75%, plus a monthly maintenance fee of 0.4%, based on the average monthly loan balance. Interest is charged on a minimum loan balance of $500,000, a loan fee of 1% annually, and an exit fee of 3%, 2% and 1% during years one, two and three, respectively.  
v3.19.2
SHARE-BASED COMPENSATION (Details) - USD ($)
3 Months Ended
Jun. 30, 2019
Jun. 30, 2018
Share-based Payment Arrangement, Expensed and Capitalized, Amount [Line Items]    
Stock-based compensation expense $ 7,702 $ 12,093
Cost Of Sales [Member]    
Share-based Payment Arrangement, Expensed and Capitalized, Amount [Line Items]    
Stock-based compensation expense 681 601
Selling And Marketing Expense [Member]    
Share-based Payment Arrangement, Expensed and Capitalized, Amount [Line Items]    
Stock-based compensation expense 790 1,296
General And Administrative Expense [Member]    
Share-based Payment Arrangement, Expensed and Capitalized, Amount [Line Items]    
Stock-based compensation expense 5,622 9,592
Research And Development Expense [Member]    
Share-based Payment Arrangement, Expensed and Capitalized, Amount [Line Items]    
Stock-based compensation expense $ 609 $ 604
v3.19.2
SHARE-BASED COMPENSATION (Details Narrative)
3 Months Ended
Jun. 30, 2019
USD ($)
shares
Share-based Compensation Details Narrative  
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants 40,000
Share-based Compensation Arrangement by Share-based Payment Award, Options, Nonvested Options Forfeited 50,000
Unrecognized compensation costs related to nonvested stock options | $ $ 131,000
v3.19.2
RELATED PARTY TRANSACTION (Details Narrative) - USD ($)
3 Months Ended
Jun. 30, 2019
Jun. 30, 2018
Director [Member]    
Related Party Transaction [Line Items]    
Consulting fees paid $ 20,094 $ 20,069
v3.19.2
SUBSEQUENT EVENTS (Details Narrative)
Aug. 09, 2019
Subsequent Event [Member]  
Loan description The loan is due on demand and has no financial covenants. Under the agreement, we were provided with a line of credit that is not to exceed the lesser of $1,000,000 or 85% of eligible accounts receivable. The interest rate is prime rate plus 1.5%, with a floor of 6.75%, plus a monthly maintenance fee of 0.4%, based on the average monthly loan balance. Interest is charged on a minimum loan balance of $500,000, a loan fee of 1% annually, and an exit fee of 3%, 2% and 1% during years one, two and three, respectively.