In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which amends guidance on reporting credit losses for assets held at amortized cost basis and available for sale debt securities. For assets held at amortized cost basis, Topic 326 eliminates the probable initial recognition threshold in current GAAP and, instead, requires an entity to reflect its current estimate of all expected credit losses. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial assets to present the net amount expected to be collected. For available for sale debt securities, credit losses should be measured in a manner similar to current GAAP, however Topic 326 will require that credit losses be presented as an allowance rather than as a write-down. This ASU affects entities holding financial assets and net investment in leases that are not accounted for at fair value through net income. The amendments affect loans, debt securities, trade receivables, net investments in leases, off balance sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual right to receive cash. The amendments in this update are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company is assessing the impact of the adoption of the ASU on its financial statements, disclosure requirements and methods of adoption.
In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The amendments in this ASU simplify the accounting for income taxes by removing several exceptions including the exception to the general methodology for calculating income taxes in an interim period when a year-to-date loss exceeds the anticipated loss for the year. The amendments also improve consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance. The amendments in this ASU are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. The Company is assessing the impact of the adoption of the ASU on its financial statements, disclosure requirements and methods of adoption.
In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform, which provided elective amendments for entities that have contracts, hedging relationships and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The amendments may be applied to impacted contracts and hedges prospectively through December 31, 2022. The Company is currently evaluating the impact this guidance will have on its financial statements.
The Company considers the applicability and impact of all recently issued accounting pronouncements. Recent accounting pronouncements not specifically identified in our disclosures are either not applicable to the Company or are not expected to have a material effect on our financial condition or results of operations.
Fair value is the exit price that would be received to sell an asset or paid to transfer a liability. Fair value is a market-based measurement that should be determined using assumptions that market participants would use in pricing an asset or liability. Valuation techniques used to measure fair value should maximize the use of observable inputs and minimize the use of unobservable inputs. To measure fair value, the Company uses the following fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable:
The carrying amounts of cash and cash equivalents, accounts receivable, prepaid expenses, accounts payable and accrued expenses are considered to be representative of their fair values because of the short-term nature of those instruments. There were no transfers between levels in the fair value hierarchy during the nine months ended September 30, 2020.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be fully recoverable. An impairment loss would be recognized when estimated undiscounted future cash flows expected to result from the use of the asset and its eventual disposition are less than the carrying amount. The impairment loss, if recognized, would be based on the excess of the carrying value of the impaired asset over its respective fair value. No impairment losses have been recorded through September 30, 2020.
RECLASSIFICATION
Certain reclassifications have been made to conform prior period data to the current presentation. These reclassifications had no effect on reported net income.
NOTE 2 — PROPERTY AND EQUIPMENT
Property and equipment consists of the following at:
|
|
|
|
|
|
|
|
|
|
September 30, 2020
|
|
December 31, 2019
|
|
Furniture, office equipment, and leasehold improvements
|
|
$
|
1,291,985
|
|
$
|
1,135,107
|
|
Manufacturing equipment and tooling
|
|
|
1,856,881
|
|
|
1,295,978
|
|
Total property and equipment
|
|
|
3,148,866
|
|
|
2,431,085
|
|
Less: accumulated depreciation
|
|
|
(1,888,191
|
)
|
|
(1,819,239
|
)
|
Property and equipment, net
|
|
$
|
1,260,675
|
|
$
|
611,846
|
|
Depreciation expense was $99,071 and $69,740 for the three months ended September 30, 2020 and 2019, respectively, and $251,084 and $218,328 for the nine months ended September 30, 2020 and 2019, respectively.
NOTE 3 — COMMITMENTS AND CONTINGENCIES
LEGAL PROCEEDINGS
The Company has been and may again become involved in legal proceedings, claims and litigation arising in the ordinary course of business. Except as described below, KORU Medical is not presently a party to any litigation or other legal proceeding that is believed to be material to its financial condition.
Litigation
Refer to Form 10-Q for the quarterly period ended June 30, 2020 regarding the dismissed case with our principal competitor, EMED Technologies Corporation (“EMED”).
NOTE 4 — STOCK-BASED COMPENSATION
On June 29, 2016, the Board of Directors amended the Company’s 2015 Stock Option Plan (as amended, the “Plan”) authorizing the Company to grant awards to certain executives, key employees, and consultants under the Plan, which was approved by shareholders at the Annual Meeting of Shareholders held on September 6, 2016. The total number of shares of Common Stock, with respect to which awards may be granted pursuant to the Plan, may not exceed 6,000,000 pursuant to an amendment to the Plan approved by shareholders on April 23, 2019, at the 2019 Annual Meeting of Shareholders.
On May 20, 2020, the Company entered into a Settlement Agreement related to its litigation with EMED as described above in “NOTE 3 — COMMITMENTS AND CONTINGENCIES.” Pursuant to the Settlement Agreement, the Company issued to EMED (i) 95,238 restricted stock units, which vested on May 21, 2020 and 95,238 restricted stock units vesting on January 1, 2021, and (ii) an option to purchase up to 400,000 shares of the Company’s common stock at an exercise price of $11.21 per share prior to February 1, 2021, which can be settled in cash in lieu of common stock at the Company’s sole discretion, provided that the number of shares of common stock and/or amount of cash paid by the Company upon exercise will be capped at a value of $16.21 per share. The option was recorded at $347,008, the estimated fair value of the option using the Black-Scholes option pricing model with a volatility rate of 52.68% and a risk-free rate of 0.17%. The Settlement Agreement includes mutual releases and covenants not to sue for any claim arising before May 20, 2020 and the Company covenants not to challenge any EMED patents that were the subject of the Claims unless EMED asserts them in the future against Company products. This was a non-cash settlement from which we recognized expense in the amount of $2.2 million in the second quarter of 2020.
- 12 -
On February 20, 2019, the Board of Directors of the Company approved an increase in compensation for each non-employee director from $25,000 to $50,000 annually effective January 1, 2019, and an additional $10,000 annually for the chair of each Board committee effective February 20, 2019, in each case to be paid quarterly half in cash and half in common stock at the end of each fiscal quarter. On September 30, 2019, the Board of Directors of the Company named R. John Fletcher, a current KORU Medical director, as Chairman, replacing Executive Chairman, Daniel S. Goldberger, who remains a non-executive member of KORU Medical’s Board of Directors. In Mr. Fletcher’s role as Chairman, he receives an additional $50,000 in annual compensation, to be paid quarterly in shares of KORU Medical common stock based on the closing price of the stock on the last day of each quarter.
Pursuant to Daniel S. Goldberger’s employment agreement dated October 12, 2018, on February 1, 2019, when Donald B. Pettigrew was appointed to President and Chief Executive Officer, Mr. Goldberger was awarded a performance bonus in the amount of $270,000 to be paid half in cash and half in stock. The number of shares that were issued totaled 90,604 and was based upon the closing price of the Common Stock of the Company on February 1, 2019, as reported by the OTCQX. These shares were issued on April 3, 2019.
2015 STOCK OPTION PLAN, as amended
Time Based Stock Options
The per share weighted average fair value of stock options granted during the nine months ended September 30, 2020 and September 30, 2019 was $6.53 and $1.33, respectively. The fair value of each award is estimated on the grant date using the Black-Scholes option pricing model with the following weighted average assumptions used for grants in the nine months ended September 30, 2020 and September 30, 2019. Historical information was the primary basis for the selection of the expected volatility, expected dividend yield and the expected lives of the options. The risk-free interest rate was selected based upon yields of the U.S. Treasury issues with a term equal to the expected life of the option being valued.
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
|
2020
|
|
2019
|
|
|
|
|
|
|
|
|
|
Dividend yield
|
|
|
0.00%
|
|
|
0.00%
|
|
Expected Volatility
|
|
|
62.11 – 62.18%
|
|
|
56.10 – 60.70%
|
|
Weighted-average volatility
|
|
|
—
|
|
|
—
|
|
Expected dividends
|
|
|
—
|
|
|
—
|
|
Expected term (in years)
|
|
|
10 Years
|
|
|
10 Years
|
|
Risk-free rate
|
|
|
0.63 – 0.64%
|
|
|
1.60 – 2.72%
|
|
The following table summarizes the status of the Plan with respect to time based stock options:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
|
|
2020
|
|
2019
|
|
|
|
Shares
|
|
Weighted
Average
Exercise
Price
|
|
Shares
|
|
Weighted
Average
Exercise
Price
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at January 1
|
|
3,647,000
|
|
$
|
1.32
|
|
2,419,000
|
|
$
|
1.00
|
|
Granted
|
|
360,000
|
|
$
|
9.54
|
|
1,650,000
|
|
$
|
1.92
|
|
Exercised
|
|
747,006
|
|
$
|
0.65
|
|
160,000
|
|
$
|
0.37
|
|
Forfeited
|
|
200,000
|
|
$
|
2.09
|
|
12,000
|
|
$
|
0.87
|
|
Outstanding at September 30
|
|
3,059,994
|
|
$
|
2.40
|
|
3,897,000
|
|
$
|
1.41
|
|
Options exercisable at September 30
|
|
1,009,629
|
|
$
|
1.36
|
|
1,037,885
|
|
$
|
0.81
|
|
Weighted average fair value of options granted during the period
|
|
—
|
|
$
|
6.53
|
|
—
|
|
$
|
1.33
|
|
Stock-based compensation expense
|
|
—
|
|
$
|
572,775
|
|
—
|
|
$
|
473,139
|
|
Total stock-based compensation expense totaled $572,775 and $473,139 for the nine months ended September 30, 2020 and 2019, respectively. Cash received from option exercises for the nine months ended September 30, 2020 and 2019 was $95,880 and $58,900, respectively.
The weighted-average grant-date fair value of options granted during the nine months ended September 30, 2020 and 2019 was $6.53 and $1.33, respectively. The total intrinsic value of options exercised during the nine months ended September 30, 2020 and 2019 was $296,226 and $30,022, respectively.
- 13 -
The following table presents information pertaining to options outstanding at September 30, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Range of Exercise Price
|
|
Number
Outstanding
|
|
Weighted
Average
Remaining
Contractual
Life
|
|
Weighted
Average
Exercise
Price
|
|
Number
Exercisable
|
|
Weighted
Average
Exercise
Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$0.50 – 9.76
|
|
3,059,994
|
|
7.5 years
|
|
$
|
2.40
|
|
1,009,629
|
|
$
|
1.36
|
|
As of September 30, 2020, there was $3,679,084 of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted under the Plan. That cost is expected to be recognized over a weighted-average period of 48 months. The total fair value of shares vested as of September 30, 2020 and 2019, was $874,041 and $506,729, respectively.
Performance Based Stock Options
The per share weighted average fair value of stock options granted during the nine months ended September 30, 2020 and 2019 was zero and $1.16, respectively. The fair value of each award is estimated on the grant date using the Black-Scholes option pricing model with the following weighted average assumptions used for grants in the nine months ended September 30, 2020 and September 30, 2019. Historical information was the primary basis for the selection of the expected volatility, expected dividend yield and the expected lives of the options. The risk-free interest rate was selected based upon yields of the U.S. Treasury issues with a term equal to the expected life of the option being valued.
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
|
2020
|
|
2019
|
|
|
|
|
|
|
|
|
|
Dividend yield
|
|
|
—
|
|
|
0.00%
|
|
Expected Volatility
|
|
|
—
|
|
|
58.90%
|
|
Weighted-average volatility
|
|
|
—
|
|
|
—
|
|
Expected dividends
|
|
|
—
|
|
|
—
|
|
Expected term (in years)
|
|
|
—
|
|
|
10 Years
|
|
Risk-free rate
|
|
|
—
|
|
|
2.07%
|
|
The following table summarizes the status of the Plan with respect to performance based stock options:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30,
|
|
|
|
2020
|
|
2019
|
|
|
|
Shares
|
|
Weighted
Average
Exercise
Price
|
|
Shares
|
|
Weighted
Average
Exercise
Price
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at January 1
|
|
1,000,000
|
|
$
|
1.70
|
|
—
|
|
$
|
—
|
|
Granted
|
|
—
|
|
$
|
—
|
|
1,000,000
|
|
$
|
1.70
|
|
Exercised
|
|
—
|
|
$
|
—
|
|
—
|
|
$
|
—
|
|
Forfeited
|
|
—
|
|
$
|
—
|
|
—
|
|
$
|
—
|
|
Outstanding at September 30
|
|
1,000,000
|
|
$
|
1.70
|
|
1,000,000
|
|
$
|
1.70
|
|
Options exercisable at September 30
|
|
333,333
|
|
$
|
1.70
|
|
—
|
|
$
|
—
|
|
Weighted average fair value of options granted during the period
|
|
—
|
|
$
|
—
|
|
—
|
|
$
|
1.16
|
|
Stock-based compensation expense
|
|
—
|
|
$
|
438,365
|
|
—
|
|
$
|
167,636
|
|
Total performance stock-based compensation expense totaled $438,365 and $167,636 for the nine months ended September 30, 2020 and 2019, respectively.
The weighted-average grant-date fair value of options granted during the nine months ended September 30, 2020 and 2019, was zero and $1.16, respectively.
- 14 -
The following table presents information pertaining to performance based options outstanding at September 30, 2020.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Range of Exercise Price
|
|
Number
Outstanding
|
|
Weighted
Average
Remaining
Contractual
Life
|
|
Weighted
Average
Exercise
Price
|
|
Number
Exercisable
|
|
Weighted
Average
Exercise
Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$1.70
|
|
1,000,000
|
|
8.7 years
|
|
$
|
1.70
|
|
333,333
|
|
$
|
1.70
|
|
As of September 30, 2020, there was $430,833 of total unrecognized compensation cost related to non-vested performance share option based compensation arrangements granted under the Plan. That cost is expected to be recognized over a weighted-average period of 31 months. The total fair value of shares vested as of September 30, 2020 and 2019 was $387,520 and zero, respectively.
NOTE 5 — DEBT OBLIGATIONS
On February 8, 2018, the Company issued a promissory note (the “Original Note”) to KeyBank National Association (“KeyBank”) in the amount of $1.5 million as a variable rate revolving line of credit loan due on demand with an interest rate of LIBOR plus 2.25%, collateralized with a certificate of deposit in the amount of $1.5 million. On September 25, 2018, KeyBank released the certificate of deposit as collateral for the loan and the Company executed a Commercial Security Agreement as collateral for the loan.
On April 14, 2020, the Company issued a promissory note to KeyBank in the aggregate principal amount of $3.5 million (the “Note”) as an extension of its line of credit, replacing its current line of credit agreement and Original Note. The Company drew on the additional $2.0 million on April 23, 2020. The Original Note was in the form of a variable rate revolving line of credit with an interest rate of LIBOR plus 2.25%. The $3.5 million Note is in the form of a variable rate non-disclosable revolving line of credit with an interest rate of Prime Rate announced by the Bank minus 0.75%. Interest is due monthly, and all principal and unpaid interest is due on June 1, 2021. The $3.5 million Note may be prepaid at any time prior to maturity with no prepayment penalties. The $3.5 million Note contains events of default and other provisions customary for a loan of this type.
In connection with the Note, the Company entered into a Commercial Security Agreement with the Bank dated April 14, 2020 (the “Security Agreement”), pursuant to which the Company granted a security interest in substantially all assets of the Company to secure the obligations of the Company under the Note. The Security Agreement contains terms and conditions typical for the granting of security interests of this kind.
The Company had no amount outstanding against the line of credit as of September 30, 2020.
On April 20, 2020, the Company entered into a Loan Agreement with the Bank (the “PPP Loan Agreement”) pursuant to the Paycheck Protection Program under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), providing for a loan in the principal amount of $1,476,508 (the “PPP Loan”). The PPP Loan was funded on April 27, 2020. On May 13, 2020, the Company returned the funds it received.
On April 27, 2020, the Company entered into a Progress Payment Loan and Security Agreement (“PPLSA”) and a Master Security Agreement (the “MSA”), each dated as of April 20, 2020, with Key Equipment Finance, a division of the Bank (“KEF”), to provide up to $2.5 million in financing for equipment purchases from third party vendors. The PPLSA allows the Company to make draws with KEF to make certain payments to the equipment suppliers prior to the commencement of periodic payments under a term loan. Each draw under the PPLSA will bear interest at a variable rate equal to the then-current Prime Rate and will be secured by the financed equipment under the MSA. At the end of each calendar quarter or year, the advances made under the PPLSA will be converted to term loans, subject to KEF’s approval of the equipment and certain other closing conditions being met. Once the draws under the PPLSA are converted into a term loan, each promissory note will bear interest at a fixed rate of 4.07% per annum, subject to adjustment based on KEF’s cost of funds, with principal and interest payable in 84 equal consecutive monthly installments. Each fixed rate installment promissory note may be prepaid, subject to a penalty if prepaid before the fifth anniversary of its issuance. As of September 30, 2020, the Company had no amount outstanding against the PPLSA.
NOTE 6 — LEASES
We have finance and operating leases for our corporate office and certain office and computer equipment. Our leases have remaining lease terms of 1 to 3 years, some of which include options to extend the leases annually and some with options to terminate the leases within 1 year.
- 15 -
The components of lease expense were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
September 30,
|
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating lease cost
|
|
$
|
37,921
|
|
$
|
37,922
|
|
$
|
113,764
|
|
$
|
111,672
|
|
Short-term lease cost
|
|
|
19,846
|
|
|
5,535
|
|
|
33,535
|
|
|
18,196
|
|
Total lease cost
|
|
$
|
57,767
|
|
$
|
43,457
|
|
$
|
147,299
|
|
$
|
129,868
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance lease cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of right-of-use assets
|
|
$
|
791
|
|
$
|
1,061
|
|
$
|
4,502
|
|
$
|
3,182
|
|
Interest on lease liabilities
|
|
|
47
|
|
|
47
|
|
|
199
|
|
|
178
|
|
Total finance lease cost
|
|
$
|
838
|
|
$
|
1,108
|
|
$
|
4,701
|
|
$
|
3,360
|
|
Supplemental cash flow information related to leases was as follows:
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
September 30,
|
|
|
|
2020
|
|
2019
|
|
Cash paid for amounts included in the measurement of lease liabilities:
|
|
|
|
|
|
|
|
Operating cash flows from operating leases
|
|
$
|
113,764
|
|
$
|
111,672
|
|
Financing cash flows from finance leases
|
|
|
4,502
|
|
|
3,122
|
|
Supplemental balance sheet information related to leases was as follows:
|
|
|
|
|
|
|
|
|
|
September 30,
2020
|
|
December 31,
2019
|
|
|
|
|
|
|
|
|
|
Operating Leases
|
|
|
|
|
|
|
|
Operating lease right-of-use assets
|
|
$
|
271,679
|
|
$
|
373,734
|
|
|
|
|
|
|
|
|
|
Operating lease current liabilities
|
|
|
140,450
|
|
|
136,888
|
|
Operating lease long term liabilities
|
|
|
131,229
|
|
|
236,846
|
|
Total operating lease liabilities
|
|
$
|
271,679
|
|
$
|
373,734
|
|
|
|
|
|
|
|
|
|
Finance Leases
|
|
|
|
|
|
|
|
Property and equipment, at cost
|
|
$
|
12,725
|
|
$
|
12,725
|
|
Accumulated depreciation
|
|
|
(9,344
|
)
|
|
(4,837
|
)
|
Property and equipment, net
|
|
$
|
3,381
|
|
$
|
7,888
|
|
|
|
|
|
|
|
|
|
Finance lease current liabilities
|
|
|
3,026
|
|
|
5,296
|
|
Finance lease long term liabilities
|
|
|
414
|
|
|
2,646
|
|
Total finance lease liabilities
|
|
$
|
3,440
|
|
$
|
7,942
|
|
|
|
|
|
|
|
|
|
September 30,
2020
|
|
December 31,
2019
|
|
|
|
|
|
|
|
Weighted Average Remaining Lease Term
|
|
|
|
|
|
Operating leases
|
|
1.6 Years
|
|
2.4 Years
|
|
Finance leases
|
|
1 Year
|
|
1.3 Years
|
|
|
|
|
|
|
|
Weighted Average Discount Rate
|
|
|
|
|
|
Operating leases
|
|
4.75%
|
|
4.75%
|
|
Finance leases
|
|
4.75%
|
|
4.75%
|
|
- 16 -
Maturities of lease liabilities are as follows:
|
|
|
|
|
|
|
|
Year Ending December 31,
|
|
Operating Leases
|
|
Finance Leases
|
|
2020 (excluding the nine months ended September 30, 2020)
|
|
$
|
37,922
|
|
$
|
832
|
|
2021
|
|
|
149,476
|
|
|
2,705
|
|
2022
|
|
|
97,256
|
|
|
—
|
|
2023
|
|
|
—
|
|
|
—
|
|
2024
|
|
|
—
|
|
|
—
|
|
2025
|
|
|
—
|
|
|
—
|
|
Thereafter
|
|
|
—
|
|
|
—
|
|
Total undiscounted lease payments
|
|
|
284,654
|
|
|
3,537
|
|
Less: imputed interest
|
|
|
(12,975
|
)
|
|
(97
|
)
|
Total lease liabilities
|
|
$
|
271,679
|
|
$
|
3,440
|
|
NOTE 7 — RELATED PARTY TRANSACTIONS
BUILDING LEASE
Mark Pastreich, a former director through April 2019, is a principal in the entity that owns the building leased by us for our corporate headquarters and manufacturing facility at 24 Carpenter Road, Chester, New York 10918. On February 28, 2019, we completed year twenty of a twenty-year lease with monthly lease payments of $11,042. On November 14, 2017, we executed a lease extension, which calls for six-month extensions beginning March 1, 2019 with the option to renew six times at a monthly lease amount of $12,088. The Company exercised four of the six additional renewal options for September 1, 2019 through August 31, 2021.
The lease payments were $36,264 for both three months ended September 30, 2020 and 2019, and $108,792 and $106,700 for the nine months ended September 30, 2020 and 2019, respectively. The Company also paid property taxes in the amount of $12,546 and $13,749 for three months ended September 30, 2020 and 2019, respectively and $39,205 and $39,165 for the nine months ended September 30, 2020 and 2019, respectively.
NOTE 8 — EQUITY
On June 18, 2020, the Company entered into a Purchase Agreement with Piper Sandler & Co. and Canaccord Genuity LLC, as representatives of the several underwriters named therein (the “Underwriters”), pursuant to which the Company agreed to issue and sell 3,125,000 shares of its common stock. Under the terms of the Purchase Agreement, the Company granted to the Underwriters an option, exercisable for a period of 30 days, to purchase up to an additional 468,750 shares of the Company’s common stock, which the Underwriters exercised in full on June 19, 2020. The Underwriters purchased the shares pursuant to the Purchase Agreement, including the shares subject to the option, at a price of $7.52 per share. Proceeds to the Company, net of discounts, commissions, fees and expenses, were $26.5 million.
NOTE 9 — SUBSEQUENT EVENT
On November 11, 2020, the Company entered into a Manufacturing and
Supply Agreement with Command Medical Products, Inc. (“Command”), pursuant to which Command has agreed to manufacture
and supply the Company’s subassemblies, needle sets and tubing products pursuant to the Company’s specifications and purchase orders.
The first binding purchase order pursuant to the Manufacturing and Supply Agreement is expected to be made within the next ten
days (the “Effective Date”).
The Manufacturing and Supply Agreement provides for a term of five
years from the Effective Date. Either party may terminate the Manufacturing and Supply Agreement upon a material breach by the
other Party that has not been cured within 90 days, upon the bankruptcy or insolvency of the other Party or as expressly set forth
elsewhere in the Agreement. If the Company terminates the Manufacturing and Supply Agreement other than for those reasons within
the first three years from the Effective Date, the Company is obligated to pay an early termination fee to Command.
The Manufacturing and Supply Agreement also includes customary provisions
relating to, among other things, delivery, inspection procedures, warranties, quality management, business continuity plans, handling
and transport, intellectual property, confidentiality and indemnification.
- 17 -