• Filing Date: 2019-08-14
  • Form Type: 10-Q
  • Description: Quarterly report
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.