Commitments and Contingencies

3 Months Ended

Mar. 31, 2019

Commitments And Contingencies Disclosure [Abstract]

Commitments and Contingencies

6.    COMMITMENTS AND CONTINGENCIES

(a) On January 22, 2013, the Company entered into a license agreement with Advanced NeuroRehabilitation, LLC (“ANR”) for an exclusive right to ANR’s patent pending technology, claims and knowhow. In addition to the issuance of 3,207,005 shares of common stock, the Company agreed to pay a 4% royalty on net revenue on the sales of devices covered by the patent-pending technology and services related to the therapy or use of devices covered by the patent-pending technology. For the three months ended March 31, 2019, the Company accrued $27,000 in royalties related to PoNS device sales for the period.

(b) On October 30, 2017, HMI amended the Asset Purchase Agreement with A&B (HK) Company Ltd. (“A&B”) which specified that if the Company fails to obtain FDA marketing authorization for commercialization of or otherwise fails to ensure that the PoNS device is available for purchase by the U.S. Government by December 31, 2021, the Company would be subject to a $2.0 million contract penalty payable to A&B, unless the Company receives an exemption for the requirement of FDA marketing authorization from the U.S. Army Medical Material Agency. In December 2018, the U.S. Army notified the Company that it was amending the Agreement such that the satisfaction of the obligation of the contract was changed from FDA marketing authorization of the PoNS device to submitting of an application for marketing authorization of the PoNS device with the FDA. As the Company submitted its application for marketing authorization of the PoNS device to the FDA on August 31, 2018, and with copies of the submission documents provided to the U.S. Army, the Company has met its obligation under the amended agreement. Based on this amendment the Company has determined that the possibility of a payment under this contractual penalty is remote. 

(c) In November 2014, the Company signed a distribution agreement with Altair LLC to apply for the registration and distribution of the PoNS device in the territories of the former Soviet Union. Through March 31, 2019, the Company was entitled to receive a 7% royalty on sales of the devices within the territories. As of March 31, 2019, the Company had not made any commercial sales in the territories. On March 21, 2019, Altair provided the Company with a notice of termination which will be effective on May 20, 2019.

(d) In March 2017, the Company entered into a lease for office space in Newtown, Pennsylvania. The initial term of the lease is from July 1, 2017 through December 31, 2022, with an option to extend until 2027. In July 2017, the Company amended the contract to commence the lease on July 17, 2017 through January 16, 2023, with an option to extend until January 2028. Monthly rent plus utilities was approximately $20,000 per month beginning in January 2019 with 3% annual increases thereafter.

The following table summarizes the Company’s operating lease information including future minimum lease payments under a non-cancellable lease as of March 31, 2019 (amounts in thousands).

For the Three Months Ended March 31, 2019
Operating lease cost	$	58
Operating lease - operating cash flows	$	61
Weighted average remaining lease term	3.83 years
Weighted average discount rate		15.1	%
Future minimum lease payments under non-cancellable lease as of March 31, 2019 were as follows:
For the Period Ending December 31,
2019 (remaining nine months)	$	186
2020		253
2021		260
2022		267
2023		10
Total future minimum lease payments		976
Less imputed interest		(231	)
Total liability	$	745
Reported as of March 31, 2019
Current operating lease liability		148
Non-current operating lease liability		597
Total	$	745

(e) On December 29, 2017, the Company entered into a Manufacturing and Supply Agreement (“MSA”) with Key Tronic Corporation (“Key Tronic”), for the manufacture and supply of the Company’s PoNS device based upon the Company’s product specifications as set forth in the MSA. Per the agreement, the Company shall provide to Key Tronic a rolling forecast for the procurement of parts and material and within normal lead times based on estimated delivery dates for the manufacture of the PoNS device. The term of the agreement is for three years and the agreement will automatically renew for additional consecutive terms of one year, unless cancelled by either party upon 180-day written notice to the other party prior to the end of the then current term. As of March 31, 2019, the Company had a $0.1 million obligation to Key Tronic to complete the Company’s initial forecast to deliver PoNS devices for commercial launch.

(f) In September 2018, the Company entered into a strategic alliance agreement with HTC and Heuro to establish three founding clinics to treat patients and create a replicable model for future clinic expansion. Under the terms of the agreement, Heuro is responsible for the development of the clinic systems to facilitate the commercialization of the PoNS Treatment in Canada. The parties will contract with the clinics and develop a model for the clinics to deliver clinical services, featuring the PoNS Treatment to manage neurological conditions. The agreement also provides for HTC to pay the Company CAD$750,000 in three annual payments of CAD$250,000 beginning December 31, 2019, in consideration for the exclusivity right the Company granted to Heuro. The Company and HTC have also agreed to each fund up to 50% of Heuro’s operating budget as agreed upon by a joint steering committee not to exceed CAD$1.0 million each. The parties have also agreed to share in the net profits and losses of Heuro on a 50/50 basis. The term of this agreement is the earlier of September 2023 or the formal adoption of a clinical expansion plan. For the three months ended March 31, 2019, the Company recorded CAD$0.2 million in expenses for its share of the estimated costs incurred by Heuro which was recorded as selling, general and administrative expenses and an additional CAD$65,000 in cost of sales for services rendered in the Company’s condensed consolidated statements of operations and comprehensive income (loss).