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Note 9 - Commitments and Contingencies
12 Months Ended
Dec. 31, 2018
Notes to Financial Statements  
Commitments and Contingencies Disclosure [Text Block]
9
.      
Commitments and Contingencies
 
Operating Leases
The Company leases the Rancho Cordova, California and Gurgaon, India facilities pursuant to operating leases. The Rancho Cordova lease expires in
May 2019
and in
January 2019
the Company signed an amendment to the lease extending it
five
years. The Gurgaon lease expires in
September 2023;
however, either party can terminate after
September 2019
with
three
months’ notice. The Company recognizes rent expense on a straight-line basis over the term of the facility lease. The annual future minimum lease payments for the Company’s non-cancelable operating leases are as follows:
 
2019
  $
311,000
 
2020
   
301,000
 
2021
   
310,000
 
2022
   
319,000
 
2023
   
329,000
 
Thereafter
   
139,000
 
Total
  $
1,709,000
 
 
Rent expense was
$517,000
for the year ended
December 31, 2018.
$241,000
for the
six
months ended
December 31, 2017
and
$291,000
for the year ended
June 30, 2017.
 
Financial Covenants
Effective
May 15, 2017,
the Company entered into a Sixth Amended and Restated Technology License and Escrow Agreement with CBR Systems, Inc. which modified the financial covenant that the Company must meet in order to avoid an event of default. The Company must maintain a cash balance and short-term investments net of debt or borrowed funds that are payable within
one
year of
not
less than
$2,000,000.
The Company was in compliance with this financial covenant as of
December 31, 2018
and
February 28, 2019.
 
Potential Severance Payments
The Company’s Chief Executive Officer (CEO) has rights upon termination under his employment agreement. With respect to his agreement at
December 31, 2018,
potential severance amounted to
$2.3
million.
 
Contingencies
and Restricted Cash
In fiscal
2016,
the Company signed an engagement letter with a strategic consulting firm (“Mavericks”). Included in the engagement letter was a success fee due upon the successful conclusion of certain transactions. On
May 4, 2017,
a lawsuit was filed against the Company and its CEO by the consulting firm as the consulting firm argues that it is owed a transaction fee of
$1,000,000
under the terms of the engagement letter due to the conversion of the Boyalife debentures in
August 2016.
In
October 2017,
to streamline the case by providing for the dismissal of claims against the Company’s CEO based on alter ego theories and without acknowledging any liability, the Company deposited
$1,000,000
with the Court. The Company filed a Motion for Summary Judgment, which was denied by the Court on
June 26, 2018.
On
September 24, 2018,
Mavericks filed an amended complaint, adding back the Company’s CEO as a named defendant, as well as Boyalife Investment, Inc. (a dissolved company) and Boyalife (Hong Kong) Limited under new theories of liability, namely intentional interference with contract and inducement of breach of contract.
No
trial date has been set. The Company intends to defend the lawsuit vigorously and
no
accrual has been recorded for this contingent liability as of
December 31, 2018.
 
In the normal course of operations, the Company
may
have disagreements or disputes with customers, employees or vendors. Such potential disputes are seen by management as a normal part of business. As of
December 31, 2018,
management believes any liability that
may
ultimately result from the resolution of these matters will
not
have a material adverse effect on the Company’s consolidated financial position, operating results or cash flows.
 
Warranty
The Company offers a warranty on all of the Company’s non-disposable products of
one
to
two
years. The Company warrants disposable products through their expiration date. The Company periodically assesses the adequacy of the Company’s recorded warranty liabilities and adjusts the amounts as necessary.
 
Changes in the Company’s product liability which is included in other current liabilities during the period are as follows:
 
   
Year Ended
December 31,
   
Six Months Ended
December 31,
   
Year Ended
June 30,
 
   
2018
   
2017
   
2017
 
Beginning balance
  $
291,000
    $
588,000
    $
566,000
 
Warranties issued during the period
   
199,000
     
95,000
     
120,000
 
Settlements made during the period
   
(252,000
)    
(359,000
)    
(93,000
)
Changes in liability for pre-existing warranties during the period
   
(52,000
)    
(33,000
)    
(5,000
)
Ending balance
  $
186,000
    $
291,000
    $
588,000