5. COMMITMENTS AND CONTINGENCIES

Commitments

The following table summarizes the Company’s commitments as of January 31, 2018 (in thousands):


			Fiscal years ending January 31,
	Total		2019		2020		2021

Operating lease	$	534	$	534	$	—	$	—
Purchase commitment		861		323		269		269
Total	$	1,395	$	857	$	269	$	269

On December 14, 2016, the Company signed a lease for 12,066 square feet of office and laboratory space in Menlo Park, California. In September 2017, the lease term was extended to December 2018 and the square footage increased to 12,203 square feet. Rent expense for the years ended January 31, 2018 and 2017 was $612,000 was $434,000, respectively.

The purchase commitment relates to the manufacturing of VI₂OLET finished product (iodine supplement tablets) and is non-cancelable. The Company assesses its purchase commitments based on demand forecasts and establishes a liability for quantities deemed in excess of these forecasts. During the year ended January 31, 2018, the Company recorded a charge of approximately $215,000 as its demand forecast indicated such inventory was deemed excess. The Company recently entered into an agreement to distribute VI₂OLET in Mexico and Central America. The Company continues to pursue additional channel distribution expansion for VI₂OLET by way of partnerships and sublicense with women’s health and/or consumer companies. The expected increase in demand generated from these partnerships is included in the Company’s demand forecast. If the Company is unsuccessful in securing such partnerships or sublicensees, it is possible that a loss contingency related to the excess purchase commitments will be required to record additional write-downs, which would negatively affect its results of operations in the period when the write-downs were recorded.

Legal Proceedings

On September 26, 2017, two purported shareholders filed a lawsuit in the Superior Court for the State of California, San Mateo County, against the Company and James Pekarsky, the Company’s former Chief Executive Officer. The lawsuit alleges that certain investments were not exempt from registration under the federal securities laws, alleges a violation of California’s Corporations Code and asserts a claim for breach of fiduciary duty. The complaint seeks unspecified rescissionary damages, interest thereon, punitive damages, and other relief. The Company continues to deny the plaintiffs’ allegations and believes the claims lack merit.

The Company is not a party to any material legal proceeding that the Company believes is likely to have a material adverse effect on its consolidated financial position or results of operations. From time to time the Company may be subject to legal proceedings and claims in the ordinary course of business. These claims, even if not meritorious, could result in the expenditure of significant financial resources and diversion of management efforts.

Indemnification

The Company enters into standard indemnification arrangements in the ordinary course of business. Pursuant to these arrangements, the Company indemnifies, holds harmless, and agrees to reimburse the indemnified parties for losses suffered or incurred by the indemnified party, in connection with any trade secret, copyright, patent or other intellectual property infringement claim by any third-party with respect to the Company’s technology. The term of these indemnification agreements is generally perpetual. The maximum potential amount of future payments the Company could be required to make under these agreements is not determinable because it involves claims that may be made against the Company in the future, but have not yet been made.

The Company has entered into indemnification agreements with its directors and officers that may require the Company to indemnify its directors and officers against liabilities that may arise by reason of their status or service as directors or officers, other than liabilities arising from willful misconduct of the individual. The Company has not incurred costs to defend lawsuits or settle claims related to these indemnification agreements. No liability associated with such indemnifications has been recorded to date.

License Agreement

In March 2013, the Company entered into an amended and restated collaboration and license agreement with Iogen, which provides the Company with a license to certain rights to label, market, and resell the finished inventory and ongoing manufacturing of the Iogen molecular iodine technology for future product formulation development and commercialization. New formulation patents developed by the Company will be solely owned by the Company. The agreement gives the Company a perpetual, fully paid-up, exclusive license to make, have made, use, sell and offer for sale and import products.

Pursuant to the terms of the license, the Company must pay:

a fee for the exclusive license to the IP.

30% of net profit associated with direct commercialization of an OTC product or 30% of net royalties received from any sub-licensee.

a royalty of 3% of net sales for the first 24 months of commercialization and 2% of net sales thereafter for a prescription iodine tablet developed and commercialized under the license.

a royalty of 3% of net sales for the first 12 months of commercialization for other products developed and commercialized under the license and 2% of net sales thereafter until expiration of applicable patents covering such products and 1% thereafter.

a fixed royalty fee for the protection and indemnification of licensed intellectual property rights (“IP rights”) for the prescription product developed, marketed and sold from newly developed formulations as long as the patents are valid and cover the prescription product.

a fixed royalty fee for the protection and indemnification of licensed IP rights for the other products utilizing the molecular iodine technology developed, marketed and sold from newly developed formulations as long as the patents are valid and cover the prescription product.

The Company capitalized as intangible assets, the amount of $150,000 related to this agreement. In the fourth quarter of 2017, the Company determined that the future cash flows expected to be generated from the intangible assets did not exceed their fair value, therefore deemed the assets were fully impaired. The Company recorded an impairment charge of approximately $89,000 and is included in amortization expense. No royalties have been paid as of January 31, 2018.