COMMITMENTS AND CONTINGENCIES

9 Months Ended

Dec. 31, 2011

COMMITMENTS AND CONTINGENCIES

COMMITMENTS AND CONTINGENCIES

Note 4.   COMMITMENTS AND CONTINGENCIES

We currently lease our facilities at 6797 Winchester Circle, Boulder, Colorado under noncancelable lease agreements through July 31, 2014. The minimum future lease payment, by fiscal year, as of December 31, 2011 is as follows:

Fiscal Year	Amount
2012 (three months remaining)	$	73,247
2013	301,469
2014	320,080
2015	108,303
Total	$	803,099

Our minimum future equipment lease payments with General Electric Capital Corporation as of December 31, 2011, by fiscal year, are as follows:

Fiscal Year	Amount
2012 (three months remaining)	$	25,469
2013	101,873
2014	8,488
Total	$	135,830

On November 11, 2011, we signed an amendment to our credit facility agreement with Silicon Valley Bank (“Silicon”), effective November 8, 2011. The terms of the credit facility include a line of credit for $2,000,000 for an interim period to December 23, 2011 at an interest rate calculated at Silicon’s prime rate, which was 4% at December 31, 2011, plus 1.25%, subject to increase upon a default. The credit facility is secured by any and all of our properties, rights and assets. Our borrowing under the credit facility is limited by our eligible receivables and inventory at the time of borrowing. The amendment has reduced our inventory borrowing base by $300,000. The credit facility requires us to meet certain financial covenants. As of December 31, 2011, we failed to meet the minimum defined quick debt ratio covenant. As a result, the lender has imposed a monthly maintenance fee, requires additional financial reporting and restricts our borrowings to the beginning of each week instead of when needed. At December 31, 2011, we had borrowed $756,237 from the credit facility and, under our eligible receivables and inventory limit, had an additional $256,000 available to borrow. On January 30, 2012, we entered into an amendment to our credit facility agreement with Silicon, effective January 23, 2012, pursuant to which Silicon has agreed to extend our credit facility through March 23, 2012, subject to the conditions set forth in the agreement. Our borrowing under the credit facility agreement is limited by our eligible receivables and inventory at the time of borrowing. The amendment provides that our inventory borrowing base is calculated as 35% of our eligible receivables, with a $400,000 limitation. Further, the amendment requires us to maintain an adjusted cash balance of $250,000. Under the amendment, our interest rate was increased to Silicon’s prime rate of 4% plus 3.5% and requires additional reporting requirements. We anticipate entering into a new credit facility agreement before our current agreement expires on March 23, 2012; however, we cannot predict with certainty that this will occur.

During the quarter ended September 30, 2011, we initiated a voluntary recall of electrode tips used in our AEM surgical systems after determining that certain tips could become susceptible to breaking off as a consequence of aggressive cleaning of the tip. In connection with the voluntary recall, we provided customers with sales credits to use for purchases of our products. At December 31, 2011, approximately $140,000 of credits has not been redeemed.

Aside from the recall credits, operating leases and credit facility commitments, 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 as of December 31, 2011. FDA inspections are conducted periodically at the discretion of the FDA. Our latest inspection by the FDA occurred in November 2009.