Quarterly report pursuant to Section 13 or 15(d)

Note 4 - Investment in Limited Liability Company

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Note 4 - Investment in Limited Liability Company
6 Months Ended
Jun. 30, 2021
Notes to Financial Statements  
Equity Method Investments and Joint Ventures Disclosure [Text Block]

4.

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 terms of the Distribution Agreement also included a minimum purchase requirement to purchase a certain quantity of ICM products per month. In addition, the parties agreed to certain mutual marketing obligations to promote sales of the licensed products. During the three months ended June 30, 2021 and 2020, the Company has purchased 100 and 120 units of ICM products for approximately $12,000 and $10,000, respectively. During the six months ended June 30, 2021 and 2020, the Company has purchased 100 and 240 units of ICM products for approximately $12,000 and $20,000, respectively. As of June 30, 2021, the Company has purchased approximately 5,385 units of ICM products. The Company paid ICM approximately $10,000 and $10,000 for product related costs during the three months ended June 30, 2021 and 2020, respectively. The Company paid ICM approximately $10,000 and $20,000 for product-related costs during the six months ended June 30, 2021 and 2020, respectively. There were no amounts due to ICM for the accounts payable as of June 30, 2021 and December 31, 2020.

 

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 condensed 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 June 30, 2021, the Company owned approximately 7% 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 three months ended June 30, 2021 and 2020, the allocated net loss from ICM’s operations was $79,000 and $86,000, respectively. For the six months ended June 30, 2021 and 2020, the allocated net loss from ICM’s operations was $155,000 and $268,000, respectively. The allocated net loss from ICM’s operations was recorded as loss from minority interest in limited liability company in the condensed consolidated statements of operations. 

 

In February 2019, the Company executed a mutual termination of the Distributorship Agreement with ICM. As a result, the Company no longer has a minimum purchase requirement to purchase a certain quantity of ICM products per month.