Royalty Commitments
The Company entered into a license agreement with a university for certain patent rights related to the development, use and production of one
of its advanced wound care products. Under this agreement, the Company incurred a royalty based on a percentage of net product sales, for the use of these patents until the patents expired, which was in November 2006. Accrued royalties totaled
$1,187 as of March 31, 2019 and December 31, 2018, and are classified as part of accrued expenses on the Companys consolidated balance sheets. There was no royalty expense incurred during the three months ended March 31, 2019 or
2018 related to this agreement.
In October 2017, the Company entered into a license agreement to resolve a patent infringement claim by a
third party. Under the license agreement, the Company is required to pay royalties based on a percentage of net sales of the licensed product that occur, after December 31, 2016, through the expiration date of the underlying patent, subject to
minimum royalty payment provisions. The Company recorded royalty expense of $788 and $388 during the three months ended March 31, 2019 and 2018, respectively, within selling, general and administrative expenses on the consolidated statement of
operations. The Company is required to make one final payment of $150 in April 2019, related to maintenance of the underlying patent.
Legal
Proceedings
In conducting its activities, the Company, from time to time, is subject to various claims and also has claims against
others. In managements opinion, the ultimate resolution of such claims would not have a material effect on the financial position of the Company. The Company accrues for these claims when amounts due are probable and estimable.
The Company accrued $1,000 as of March 31, 2019 and December 31, 2018 in relation to certain pending lawsuits.
The purchase price for NuTech Medical included $7,500 of future payments issued as deferred acquisition consideration. As of March 31,
2019, the Company has paid $2,500 in deferred acquisition consideration. The amount, if any, of the remaining $5,000 of deferred acquisition consideration plus accrued interest owed to the sellers of NuTech Medical is currently in dispute. As of
March 31, 2019, the Company recorded $692 of accrued interest related to the deferred acquisition consideration which is recorded in accrued expenses and other current liabilities. The Company has asserted certain claims for indemnification
that would offset in whole or in part its payment obligation and the sellers of NuTech Medical have filed a lawsuit alleging breach of contract and seeking specific performance of the alleged payment obligation and attorneys fees.
14. Related Party Transactions
Capital
lease obligations to affiliates are further described in Notes 13.
During 2010, the Companys board of directors approved a loan
program that permitted the Company to make loans to three executives of the Company (the Employer Loans) to (i) provide them with liquidity (Liquidity Loans) and (ii) fund the exercise of vested stock options
(Option Loans). The Employer Loans mature with all principal and accrued interest due on the tenth anniversary of the issuance date of each subject loan, except that in certain circumstances the Employer Loans may mature earlier. The
borrower may prepay all or any portion of his Employer Loan at any time without premium or penalty. Interest on the Employer Loans accrues at various rates ranging from 2.30%3.86% per annum, compounded annually. The Employer Loans are secured
by stock and options in the Company held by the borrowers. The Company has no personal recourse against the borrowers beyond the pledged shares and options. As of March 31, 2019 and December 31, 2018, Liquidity Loans to two former
executives remain outstanding with an aggregate principal balance of $2,350. As of March 31, 2019 and December 31, 2018, Option Loans to one former executive was outstanding with an aggregate principal balance of $635 and was secured by
675,990 shares of Class A common stock held by the former executive (see Note 11). The net principal and interest receivable under the Employer Loans as of March 31, 2019 and December 31, 2018 was $496 and $477, respectively, and is
included in the notes receivable from related parties balance in the consolidated balance sheets. Interest income related to these notes was $19 for three months ended March 31, 2019 and 2018.
In connection with the acquisition of NuTech Medical, the Company entered into an operating lease with Oxmoor Holdings, LLC, an entity that is
affiliated with the sole shareholder of NuTech Medical, related to the facility at NuTech Medicals headquarters in Birmingham, Alabama. Under the lease, the Company is required to make monthly rent payments of approximately $21 through
December 31, 2020. The rent expense for three months ended March 31, 2019 and 2018 was $62 and $60 respectively.
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