Annual report pursuant to Section 13 and 15(d)

Note 5 - Investment in Limited Liability Company

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Note 5 - Investment in Limited Liability Company
12 Months Ended
Dec. 31, 2018
Notes to Financial Statements  
Equity Method Investments and Joint Ventures Disclosure [Text Block]
5.
Investment in Limited Liability Company
 
On
August 8, 2017,
the Company entered into an exclusive Distributorship Agreement (the “Distributorship Agreement”) with InControl Medical, LLC (“ICM”), a Wisconsin limited liability company focused on women's health, pursuant to which the Company will directly market, promote, distribute and sell ICM’s products to licensed medical professional offices and hospitals in North America.
 
Under the terms of the Distributorship Agreement, ICM agreed to
not
directly or indirectly appoint or authorize any
third
party to market, promote, distribute or sell any of the licensed products to any licensed medical professional offices and hospitals in the United States. In exchange, the Company agreed to
not
market, promote, distribute or sell (or contract to do so) any product which substantially replicates all or almost all of the key features of the licensed products. The Company has a minimum purchase requirement to purchase a certain quantity of ICM products per month during the term of this Distributorship Agreement. In addition, the parties agreed to certain mutual marketing obligations to promote sales of the licensed products. During the years ended
December 31, 2018
and
2017,
the Company has purchased
3,300
and
1,200
units of ICM products for approximately
$327,000
and
$89,000,
respectively. As of
December 31, 2018,
the Company has purchased approximately
4,500
units of ICM products for approximately
$416,000.
The Company paid ICM approximately 
$337,000
and
$94,000
for product related costs during the years ended
December 31, 2018
and
2017,
respectively.   
  
In connection with the Distributorship Agreement, the Company also entered into a Membership Unit Subscription Agreement with ICM and the associated limited liability company operating agreement of ICM, pursuant to which the Company invested
$2,500,000
in, and acquired membership units of, ICM. This investment has been recorded in investment in a limited liability company in the consolidated balance sheets. The Company used the equity method to account for the investment in ICM because the Company does
not
control it but has the ability to exercise significant influence over it. As of
December 31, 2018,
the Company owns approximately
9%
ownership interest in ICM. The Company recognizes its allocated portion of ICM’s results of operations on a
three
-month lag due to the timing of financial information. For the year ended
December 31, 2018,
the allocated net loss from ICM’s operations was
$657,000
that was recorded as a loss from minority interest in limited liability company in the consolidated statements of operations. For the year ended
December 31, 2017,
the allocated net loss from ICM’s operations was immaterial.