Document and Entity Information
Document and Entity Information - shares | 9 Months Ended | |
Dec. 31, 2017 | Feb. 09, 2018 | |
Document And Entity Information | ||
Entity Registrant Name | Sonoma Pharmaceuticals, Inc. | |
Entity Central Index Key | 1,367,083 | |
Document Type | 10-Q | |
Document Period End Date | Dec. 31, 2017 | |
Amendment Flag | false | |
Current Fiscal Year End Date | --03-31 | |
Is Entity a Well-known Seasoned Issuer? | No | |
Is Entity a Voluntary Filer? | No | |
Is Entity's Reporting Status Current? | Yes | |
Entity Filer Category | Smaller Reporting Company | |
Entity Common Stock, Shares Outstanding | 4,732,202 | |
Document Fiscal Period Focus | Q3 | |
Document Fiscal Year Focus | 2,018 |
Condensed Consolidated Balance
Condensed Consolidated Balance Sheets (Unaudited) - USD ($) $ in Thousands | Dec. 31, 2017 | Mar. 31, 2017 |
Current assets: | ||
Cash and cash equivalents | $ 8,625 | $ 17,461 |
Accounts receivable, net | 2,609 | 2,108 |
Inventories, net | 2,701 | 2,221 |
Prepaid expenses and other current assets | 1,508 | 616 |
Current portion of deferred consideration, net of discount | 229 | 237 |
Total current assets | 15,672 | 22,643 |
Property and equipment, net | 1,200 | 1,239 |
Deferred consideration, net of discount, less current portion | 1,392 | 1,497 |
Other assets | 91 | 80 |
Total assets | 18,355 | 25,459 |
Current liabilities: | ||
Accounts payable | 1,400 | 1,255 |
Accrued expenses and other current liabilities | 1,515 | 1,302 |
Deferred revenue | 180 | 345 |
Deferred revenue Invekra | 140 | 176 |
Current portion of long-term debt | 12 | 123 |
Current portions of capital leases | 146 | 74 |
Taxes payable | 0 | 13 |
Total current liabilities | 3,393 | 3,288 |
Long-term deferred revenue Invekra | 492 | 527 |
Long-term debt, less current portion | 35 | 45 |
Long-term capital leases, less current portion | 179 | 168 |
Total liabilities | 4,099 | 4,028 |
Commitments and Contingencies (Note 6) | ||
Stockholders' Equity | ||
Convertible preferred stock, $0.0001 par value; 714,286 shares authorized, none issued and outstanding at December 31, 2017 and March 31, 2017, respectively | 0 | 0 |
Common stock, $0.0001 par value; 12,000,000 shares authorized at December 31, 2017 and March 31, 2017, 4,637,541 and 4,289,322 shares issued and outstanding at December 31, 2017 and March 31, 2017, respectively | 1 | 1 |
Additional paid-in capital | 171,332 | 168,709 |
Accumulated deficit | (152,677) | (143,101) |
Accumulated other comprehensive loss | (4,400) | (4,178) |
Total stockholders' equity | 14,256 | 21,431 |
Total liabilities and stockholders' equity | $ 18,355 | $ 25,459 |
Condensed Consolidated Balance3
Condensed Consolidated Balance Sheets (Unaudited) (Parenthetical) - $ / shares | Dec. 31, 2017 | Mar. 31, 2017 |
Statement of Financial Position [Abstract] | ||
Convertible preferred stock par value | $ 0.0001 | $ 0.0001 |
Convertible preferred stock shares authorized | 714,286 | 714,286 |
Convertible preferred stock shares issued | 0 | 0 |
Convertible preferred stock shares outstanding | 0 | 0 |
Common stock par value | $ .0001 | $ 0.0001 |
Common stock shares authorized | 12,000,000 | 12,000,000 |
Common stock shares issued | 4,637,541 | 4,289,322 |
Common stock shares outstanding | 4,637,541 | 4,289,322 |
Condensed Consolidated Statemen
Condensed Consolidated Statements of Comprehensive Loss (Unaudited) - USD ($) $ in Thousands | 3 Months Ended | 9 Months Ended | ||
Dec. 31, 2017 | Dec. 31, 2016 | Dec. 31, 2017 | Dec. 31, 2016 | |
Revenues | ||||
Product | $ 4,647 | $ 3,174 | $ 12,394 | $ 8,158 |
Service | 196 | 187 | 609 | 638 |
Total revenues | 4,843 | 3,361 | 13,003 | 8,796 |
Cost of revenues | ||||
Product | 2,308 | 1,476 | 6,529 | 4,507 |
Service | 167 | 179 | 496 | 568 |
Total cost of revenues | 2,475 | 1,655 | 7,025 | 5,075 |
Gross profit | 2,368 | 1,706 | 5,978 | 3,721 |
Operating expenses | ||||
Research and development | 349 | 487 | 1,099 | 1,226 |
Selling, general and administrative | 5,219 | 4,784 | 14,319 | 12,557 |
Total operating expenses | 5,568 | 5,271 | 15,418 | 13,783 |
Loss from operations | (3,200) | (3,565) | (9,440) | (10,062) |
Interest expense | (11) | 0 | (31) | (2) |
Interest income | 14 | 6 | 85 | 8 |
Other (expense) income, net | 10 | 282 | (179) | 276 |
Loss from continuing operations before income taxes | (3,187) | (3,277) | (9,565) | (9,780) |
Income tax benefit | 0 | 4,040 | 0 | 4,040 |
Loss from continuing operations | (3,187) | 763 | (9,565) | (5,740) |
Income from discontinued operations (net of tax) (Note 4) | 0 | 15,465 | 0 | 17,450 |
Net loss | $ (3,187) | $ 16,228 | $ (9,565) | $ 11,710 |
Net (loss) income per share: basic - Continuing operations | $ (0.73) | $ 0.18 | $ (2.21) | $ (1.36) |
Net (loss) income per share: basic - Discontinued operations | 0 | 3.66 | 0 | 4.15 |
Net (loss) income per share: basic | $ (0.73) | $ 3.84 | $ (2.21) | $ 2.79 |
Weighted-average number of shares used in per share calculations: basic | 4,392,000 | 4,225,000 | 4,333,000 | 4,209,000 |
Net (loss) income per share: diluted - Continuing operations | $ (0.73) | $ 0.18 | $ (2.21) | $ (1.36) |
Net (loss) income per share: diluted - Discontinued operations | 0 | 3.66 | 0 | 4.15 |
Net (loss) income per share: diluted | $ (0.73) | $ 3.84 | $ (2.21) | $ 2.79 |
Weighted-average number of shares used in per share calculations: diluted | 4,392,000 | 4,228,000 | 4,333,000 | 4,209,000 |
Other comprehensive loss | ||||
Net loss | $ (3,187) | $ 16,228 | $ (9,565) | $ 11,710 |
Foreign currency translation adjustments | (377) | (416) | (222) | (817) |
Comprehensive loss | $ (3,564) | $ 15,812 | $ (9,787) | $ 10,893 |
Condensed Consolidated Stateme5
Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($) $ in Thousands | 9 Months Ended | |
Dec. 31, 2017 | Dec. 31, 2016 | |
Cash flows from operating activities | ||
Net loss from continuing operations | $ (9,565) | $ (5,740) |
Income from discontinued operations, net of tax | 0 | 17,450 |
Net loss | (9,565) | 11,710 |
Adjustments to reconcile net loss to net cash used in operating activities: | ||
Depreciation and amortization | 366 | 178 |
Gain on sale of Latin American assets, net of tax | 0 | (14,906) |
Income tax benefit | 0 | (4,040) |
Stock-based compensation | 1,530 | 1,732 |
Service provider expenses settled with common stock | 62 | 98 |
Changes in operating assets and liabilities: | ||
Accounts receivable | (500) | (118) |
Inventories | (521) | (644) |
Prepaid expenses and other current assets | (951) | 1,104 |
Accounts payable | 151 | (205) |
Accrued expenses and other current liabilities | 174 | 86 |
Deferred revenue | (137) | (467) |
Net cash used in operating activities | (9,391) | (5,472) |
Cash flows from investing activities: | ||
Purchases of property and equipment | (178) | (195) |
Proceeds from sale of Latin American assets, net of costs | 0 | 17,444 |
Deposits | (15) | (17) |
Net cash (used in) provided by investing activities | (193) | 17,232 |
Cash flows from financing activities: | ||
Proceeds from issuance of common stock, net of offering costs | 968 | 0 |
Proceeds from exercise of common stock purchase warrants | 52 | 0 |
Principal payments on capital leases | (97) | 0 |
Principal payments on long-term debt | (121) | (119) |
Net cash provided by (used in) financing activities | 802 | (119) |
Effect of exchange rate on cash and cash equivalents | (54) | (127) |
Net (decrease) increase in cash and cash equivalents | (8,836) | 11,514 |
Cash and cash equivalents, beginning of period | 17,461 | 7,469 |
Cash and cash equivalents, end of period | 8,625 | 18,983 |
Supplemental disclosure of cash flow information: | ||
Cash paid for interest | 31 | 2 |
Non-cash operating and financing activities: | ||
Automobiles financed using capital leases | 180 | 0 |
Sale to Invekra: Assets acquired and liabilities assumed: | ||
Restricted cash | 0 | 1,500 |
Deferred consideration – current, net | 0 | 239 |
Deferred consideration – long-term, net | 0 | 1,509 |
Taxes payable | 0 | (229) |
Deferred tax liability | 0 | (312) |
Deferred revenue – current | 0 | (674) |
Deferred revenue – long-term | 0 | (531) |
Total non-cash items | $ 0 | $ 1,502 |
1. Organization and Recent Deve
1. Organization and Recent Developments | 9 Months Ended |
Dec. 31, 2017 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
Organization and Recent Developments | Organization Sonoma Pharmaceuticals, Inc., (the “Company”), was incorporated under the laws of the State of California in April 1999 and was reincorporated under the laws of the State of Delaware in December 2006. The Company’s principal office is located in Petaluma, California. The Company is a specialty pharmaceutical company dedicated to identifying, developing and commercializing unique, differentiated therapies to millions of patients living with chronic skin conditions. The Company believes its products, which are sold throughout the United States and internationally, have improved patient outcomes for more than five million patients globally by treating and reducing certain topical skin diseases including acne, atopic dermatitis, scarring, infections, itch, pain and harmful inflammatory responses. Basis of Presentation The accompanying unaudited condensed consolidated financial statements as of December 31, 2017 and for the three and nine months then ended have been prepared in accordance with the accounting principles generally accepted in the United States of America for interim financial information and pursuant to the instructions to Form 10-Q and Article 8 of Regulation S-X of the Securities and Exchange Commission (“SEC”) and on the same basis as the Company prepares its annual audited consolidated financial statements. The condensed consolidated balance sheet as of December 31, 2017, the condensed consolidated statements of comprehensive (loss) income for the three and nine months ended December 31, 2017 and 2016 and the condensed consolidated statements of cash flows for the nine months ended December 31, 2017 and 2016 are unaudited, but include all adjustments, consisting only of normal recurring adjustments, which the Company considers necessary for a fair presentation of the consolidated financial position, operating results and cash flows for the periods presented. The results for the three and nine months ended December 31, 2017 are not necessarily indicative of results to be expected for the year ending March 31, 2018 or for any future interim period. The condensed consolidated balance sheet at March 31, 2017 has been derived from audited consolidated financial statements. These unaudited condensed consolidated financial statements of the Company have been prepared in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”) for interim financial information. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. The accompanying condensed consolidated financial statements should be read in conjunction with the consolidated financial statements for the year ended March 31, 2017, and notes thereto included in the Company’s annual report on Form 10-K, which was filed with the SEC on June 28, 2017. |
2. Liquidity and Financial Cond
2. Liquidity and Financial Condition | 9 Months Ended |
Dec. 31, 2017 | |
Liquidity And Financial Condition | |
Liquidity and Financial Condition | The Company reported a net loss of $9,565,000 for the nine months ended December 31, 2017. At December 31, 2017 and March 31, 2017, the Company’s accumulated deficit amounted to $152,677,000 and $143,101,000, respectively. The Company had working capital of $12,279,000 and $19,355,000 as of December 31, 2017 and March 31, 2017, respectively. The Company expects to continue incurring losses for the foreseeable future and may need to raise additional capital to pursue its product development initiatives, penetrate markets for the sale of its products and continue as a going concern. On December 8, 2017, the Company entered into an At Market Issuance Sales Agreement, with B. Riley FBR, Inc. (“B. Riley”) under which the Company may issue and sell shares of its common stock having an aggregate offering price of up to $5,000,000 from time to time through B. Riley acting as its sales agent. The Company will pay B. Riley a commission rate equal to 3.0% of the gross proceeds from the sale of any shares of common stock sold through B. Riley as agent. For the three months ended December 31, 2017, the Company sold 228,000 shares of common stock for gross proceeds of $1,034,000 and net proceeds of $968,000 after deducting commissions and other offering expenses. Management believes that the Company has access to additional capital resources through possible public or private equity offerings, debt financings, corporate collaborations or other means; however, the Company cannot provide any assurance that other new financings will be available on commercially acceptable terms, if needed. If the economic climate in the U.S. deteriorates, the Company’s ability to raise additional capital could be negatively impacted. If the Company is unable to secure additional capital, it may be required to curtail its research and development initiatives and take additional measures to reduce costs in order to conserve its cash in amounts sufficient to sustain operations and meet its obligations. These measures could cause significant delays in the Company’s efforts to commercialize its products, which is critical to the realization of its business plan and the future operations of the Company. These matters raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying condensed consolidated financial statements do not include any adjustments that may be necessary should the Company be unable to continue as a going concern. |
3. Summary of Significant Accou
3. Summary of Significant Accounting Policies | 9 Months Ended |
Dec. 31, 2017 | |
Accounting Policies [Abstract] | |
Summary of Significant Accounting Policies | Use of Estimates The preparation of condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent liabilities at the dates of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from these estimates. Significant estimates and assumptions include reserves and write-downs related to receivables and inventories, the recoverability of long-lived assets, the valuation allowance relating to the Company’s deferred tax assets, valuation of equity and derivative instruments, debt discounts, valuation of investments, determination of the relative selling prices of the components sold to Invekra, and the estimated amortization periods of upfront product licensing fees received from customers. Periodically, the Company evaluates and adjusts estimates accordingly. The allowance for doubtful accounts represents probable credit losses of $13,000 and $14,000 at December 31, 2017 and March 31, 2017, respectively. Additionally, at December 31, 2017 and March 31, 2017 the Company has allowances of $1,423,000 and $672,000, respectively, related to potential discounts, returns, distributor fees and rebates. The allowances are included in Accounts Receivable, net in the accompanying condensed consolidated balance sheets. Basic and Diluted Net Income (Loss) per common share Basic earnings and loss per share for both continuing and discontinued operations are computed by dividing the net income or loss available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted earnings per share is computed using the weighted average number of common shares and, if dilutive, potential common shares outstanding during the period. Potential common shares consist of the incremental common shares issuable upon the exercise of stock options (using the treasury stock method) and warrants (using the if-converted method). Diluted loss per share excludes the shares issuable upon the exercise of stock options and warrants from the calculation of net loss per share as their effect would be anti-dilutive. Three Months Ended Nine Months Ended December 31, December 31, 2017 2016 2017 2016 Numerator: Net (loss) income from continuing operations $ (3,187,000 ) $ 763,000 $ (9,565,000 ) $ (5,740,000 ) Net income from discontinued operations (net of tax) – 15,465,000 – 17,450,000 Net (loss) income $ (3,187,000 ) $ 16,228,000 $ (9,565,000 ) $ 11,710,000 Denominator: Weighted-average number of common shares outstanding - basic 4,392,000 4,225,000 4,333,000 4,209,000 Options to purchase common stock – 3,000 – – Weighted-average number of common shares outstanding - diluted 4,392,000 4,228,000 4,333,000 4,209,000 Basic – net (loss) income from continuing operations $ (0.73 ) $ 0.18 $ (2.21 ) $ (1.36 ) Basic – net income from discontinued operations (net of tax) – 3.66 – 4.15 $ (0.73 ) $ 3.84 $ (2.21 ) $ 2.79 Diluted – net loss income from continuing operations $ (0.73 ) $ 0.18 $ (2.21 ) $ (1.36 ) Diluted – net income from discontinued operations (net of tax) – 3.66 – 4.15 $ (0.73 ) $ 3.84 $ (2.21 ) $ 2.79 The following securities were excluded from the weighted average dilutive common shares outstanding because their inclusion would have been antidilutive. Three Months Ended Nine Months Ended December 31, December 31, 2017 2016 2017 2016 Restricted stock units 33,000 – 33,000 – Options to purchase common stock 1,385,000 848,000 1,385,000 851,000 Warrants to purchase common stock 1,333,000 1,365,000 1,333,000 1,365,000 2,751,000 2,213,000 2,751,000 2,216,000 Revenue Recognition and Accounts Receivable The Company generates revenue from sales of its products to a customer base including hospitals, medical centers, doctors, pharmacies, distributors and wholesalers. The Company sells products directly to end users and to distributors. The Company also has entered into agreements to license its technology and products. The Company also provides regulatory compliance testing and quality assurance services to medical device and pharmaceutical companies. The Company records revenue when (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred, (iii) the fee is fixed or determinable, and (iv) collectability of the sale is reasonably assured. The Company requires all product sales to be supported by evidence of a sale transaction that clearly indicates the selling price to the customer, shipping terms and payment terms. Evidence of an arrangement generally consists of a contract or purchase order approved by the customer. The Company has ongoing relationships with certain customers from which it customarily accepts orders by telephone in lieu of purchase orders. The Company recognizes revenue at the time it receives confirmation that the goods were either tendered at their destination, when shipped “FOB destination,” or transferred to a shipping agent, when shipped “FOB shipping point.” Delivery to the customer is deemed to have occurred when the customer takes title to the product. Generally, title passes to the customer upon shipment, but could occur when the customer receives the product based on the terms of the agreement with the customer. The selling prices of all goods are fixed, and agreed to with the customer, prior to shipment. Selling prices are generally based on established list prices. The right to return product is customarily based on the terms of the agreement with the customer. The Company estimates and accrues for potential returns and records this as a reduction of revenue in the same period the related revenue is recognized. Additionally, distribution fees are paid to certain wholesale distributors based on contractually determined rates. The Company estimates and accrues the fee on shipment to the respective wholesale distributors and recognizes the fee as a reduction of revenue in the same period the related revenue is recognized. The Company also offers cash discounts to certain customers, generally 2% of the sales price, as an incentive for prompt payment. The Company accounts for cash discounts by reducing accounts receivable by the prompt pay discount amount and recognizes the discount as a reduction of revenue in the same period the related revenue is recognized. Additionally, the Company participates in certain rebate programs which provide discounted prescriptions to qualified patients. The Company contracts with a third-party to administer the program. The Company estimates and accrues for future rebates based on historical data for rebate redemption rates and the historical value of redemptions. Rebates are recognized as a reduction of revenue in the same period the related revenue is recognized. The Company evaluates the creditworthiness of new customers and monitors the creditworthiness of its existing customers to determine whether an event or changes in their financial circumstances would raise doubt as to the collectability of a sale at the time in which a sale is made. Payment terms on sales made in the United States are generally 30 to 60 days and are extended up to 90 days for initial product launches, payment terms internationally generally range from prepaid prior to shipment to 90 days. In the event a sale is made to a customer under circumstances in which collectability is not reasonably assured, the Company either requires the customer to remit payment prior to shipment or defers recognition of the revenue until payment is received. The Company maintains a reserve for amounts which may not be collectible due to risk of credit losses. In the event a sale is made to a customer under circumstances in which returns cannot be estimated, the Company defers recognition of the revenue until sell-through is confirmed. Product license revenue is generated through agreements with strategic partners for the commercialization of Microcyn® products. The terms of the agreements sometimes include non-refundable upfront fees. The Company analyzes multiple element arrangements to determine whether the elements can be separated. Analysis is performed at the inception of the arrangement and as each product is delivered. If a product or service is not separable, the combined deliverables are accounted for as a single unit of accounting and recognized over the performance obligation period. When appropriate, the Company defers recognition of non-refundable upfront fees. If the Company has continuing performance obligations then such up-front fees are deferred and recognized over the period of continuing involvement. The Company recognizes royalty revenues from licensed products upon the sale of the related products. Revenue from consulting contracts is recognized as services are provided. Revenue from testing contracts is recognized as tests are completed and a final report is sent to the customer. Inventories Inventories are stated at the lower of cost, cost being determined on a standard cost basis (which approximates actual cost on a first-in, first-out basis), or net realizable value. Due to changing market conditions, estimated future requirements, age of the inventories on hand and production of new products, the Company regularly reviews inventory quantities on hand and records a provision to write down excess and obsolete inventory to its estimated net realizable value. The Company recorded reserves to reduce the carrying amounts of inventories to their net realizable value in the amounts of $201,000 and $61,000 at December 31, 2017 and March 31, 2017, respectively. Reclassifications Certain prior period amounts have been reclassified for comparative purposes to conform to the fiscal 2018 presentation. These reclassifications have no impact on the Company’s previously reported condensed consolidated net loss. Subsequent Events The Company evaluates events that have occurred after the balance sheet date but before the financial statements are issued. Based upon the evaluation, the Company did not identify any recognized or non-recognized subsequent events that would have required adjustment or disclosure in the condensed consolidated financial statements (Note 11). Adoption of Recent Accounting Standards In March 2016 the FASB issued ASU No. 2016-09, Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting On April 1, 2017, the Company adopted ASU No. 2016-09. As a result of adopting ASU No. 2016-09, the Company has made an accounting policy election to account for forfeitures as they occur. This change has been applied on a modified retrospective basis, with no material impacts on the Company’s financial statements. The adoption of ASU No. 2016-09 also requires excess tax benefits and tax deficiencies be recorded in the income statement as opposed to additional paid-in capital when the awards vest or are settled and recognize all previously unrecognized excess tax benefits and tax deficiencies upon adoption as a cumulative-effect adjustment to retained earnings. As of April 1, 2017, the Company recognized excess tax benefit of approximately $533,000 as an increase to deferred tax assets. However, the entire amount was offset by a full valuation allowance. Accordingly, no cumulative-effect adjustment to retained earnings was recorded as of December 31, 2017. Additionally, the adoption of ASU No. 2016-09 related to the accounting for minimum statutory withholding tax requirements and cash paid by an employer when directly withholding shares for tax-withholding purposes had no impact on the Company's current consolidated financial statements or on any prior period financial statements presented. Recent Accounting Standards Leases In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842) Leases (Topic 840) Amendments to SEC Paragraphs Pursuant to the Staff Announcement at the July 20, 2017 EITF Meeting and Rescission of Prior SEC Staff Announcements and Observer Comments Revenue In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers Principal versus Agent Considerations (Reporting Revenue Gross versus Net) Identifying Performance Obligations and Licensing Narrow-Scope Improvements and Practical Expedients Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers Revenue Recognition (Topic 605), Revenue from Contracts with Customers (Topic 606), Leases (Topic 840), and Leases (Topic 842), Business Combinations In January 2017, the FASB issued an ASU 2017-01, Business Combinations (Topic 805) Clarifying the Definition of a Business Stock Compensation In May 2017, the FASB issued ASU No. 2017-09, Compensation–Stock Compensation Scope of Modification Accounting Accounting standards that have been issued or proposed by the FASB, the SEC or other standard setting bodies that do not require adoption until a future date are not expected to have a material impact on the consolidated financial statements upon adoption. |
4. Disposition of Latin America
4. Disposition of Latin American Operations | 9 Months Ended |
Dec. 31, 2017 | |
Discontinued Operations and Disposal Groups [Abstract] | |
Disposition of Latin American Operations | Description of Sale to Invekra On October 27, 2016, the Company, along with its Mexican subsidiary and manufacturer Oculus Technologies of Mexico, S.A. de C.V. (“OTM”), closed on an asset purchase agreement with Invekra, S.A.P.I. de C.V. (“Invekra”), an affiliate of Laboratorios Sanfer S.A. de C.V., for the sale of certain of its Latin America assets. Specifically, the Company agreed to sell certain patents, patent applications, trademarks and territory rights for Mexico, the Caribbean and South America, excluding the sale of dermatology products in Brazil, as well as to build and deliver equipment that Invekra will use to produce its own product. The aggregate purchase price that Invekra will pay for the assets is $22,000,000, of which $18,000,000 was paid upon closing, $1,500,000 was paid on March 16, 2017 upon the delivery of certain equipment, and $2,500,000 is to be paid in Mexican currency in quarterly installments over a period of ten years from closing as consideration for the provision of certain services and providing technical assistance, calculated as three percent on net sales of certain products in Latin America, excluding Mexico. Because the $2,500,000 is to be paid in foreign currency, the Company may receive more or less than $2,500,000 due to currency fluctuations. During the nine months ended December 31, 2017, the Company recorded $39,000 of service revenue and $33,000 of interest income related to technical assistance which is reflected in the accompanying condensed consolidated statement of comprehensive (loss) income for the nine months ended December 31, 2017. In connection with the asset purchase agreement, the Company agreed to provide the technology, know-how and assistance to Invekra to enable Invekra to manufacture on its own the products as currently produced by the Company (“Technical Services Arrangement”), and continue to supply product to Invekra for a two-year transition period from the Sale Date, subject to mutual extension (“Supply Agreement”). During the three and nine months ended December 31, 2016, the Company reported $465,000 of Latin America product revenue related to the Supply Agreement with Invekra. During the three and nine months ended December 31, 2017, the Company reported $772,000 and $2,095,000, respectively, of Latin America product revenue related to the Supply Agreement with Invekra. The Company will provide product under the Supply Agreement at a reduced price from its current price list, while Invekra builds its own manufacturing line. At the conclusion of the transition period, the Company will cease to be a supplier of product to Invekra. The Company is uncertain as to the duration of the transition period or when Invekra will complete the build out of its manufacturing line. Pursuant to the Supply Agreement, the Company is subject to a potential penalty for failure to supply the products for a consecutive period of nine months. The penalty, if triggered, will require the Company to make a one-time payment of $2,000,000 to Invekra. The penalty decreases by 12.5% each quarter of the term of the supply period. Discontinued operations As of December 31, 2016, the Company determined that the sale of its Latin American operations to Invekra qualified as a sale of a component of its business and, as such, all such activity prior to consummation of the sale is required to be included in discontinued operations on the Company’s statement of operations. This includes the direct labor and materials for the product delivered to Invekra, the revenue on the sales to Invekra and the gain on the sale to Invekra, net of tax. The operations of its Latin American business included in discontinued operations is summarized as follows: Three Months Ended December 31, Nine Months Ended December 31, 2017 2016 2017 2016 Revenues $ – $ 621,000 $ – $ 3,105,000 Cost of Revenues – 62,000 – 561,000 Income from discontinued operations before tax 559,000 2,544,000 Gain on disposal of discontinued operations before income taxes – 19,487,000 – 19,487,000 Total income from discontinued operations, before tax – 20,046,000 – 22,031,000 Income Tax benefit (expense) – (4,581,000 ) – (4,581,000 ) Income from discontinued operations, net of tax $ – $ 15,465,000 $ – $ 17,450,000 |
5. Inventories
5. Inventories | 9 Months Ended |
Dec. 31, 2017 | |
Inventory Disclosure [Abstract] | |
Inventories | Inventories, net Inventories consist of the following: December 31, March 31, 2017 2017 Raw materials $ 1,526,000 $ 1,480,000 Finished goods 1,175,000 741,000 $ 2,701,000 $ 2,221,000 |
6. Commitments and Contingencie
6. Commitments and Contingencies | 9 Months Ended |
Dec. 31, 2017 | |
Commitments and Contingencies Disclosure [Abstract] | |
Commitments and Contingencies | Legal Matters The Company, on occasion, may be involved in legal matters arising in the ordinary course of business including matters involving proprietary technology. While management believes that such matters are currently insignificant, matters arising in the ordinary course of business for which the Company is or could become involved in litigation may have a material adverse effect on its business and financial condition of comprehensive (loss) income. Employment Agreements As of December 31, 2017, the Company had employment agreements in place with six of its key executives. The agreements provide, among other things, for the payment of twelve to eighteen months of severance compensation for terminations under certain circumstances. With respect to these agreements, at December 31, 2017, aggregated annual salaries would be $1,167,000 and potential severance payments to these key executives would be $1,417,000 if triggered. |
7. Stockholders' Equity
7. Stockholders' Equity | 9 Months Ended |
Dec. 31, 2017 | |
Stockholders' Equity | |
Stockholders' Equity | Authorized Capital The Company is authorized to issue up to 12,000,000 shares of common stock with a par value of $0.0001 per share and 714,286 shares of convertible preferred stock with a par value of $0.0001 per share. At Market Issuance of Common Stock On December 8, 2017, the Company entered into an At Market Issuance Sales Agreement, with B. Riley FBR, Inc. (“B. Riley”) under which the Company may issue and sell shares of its common stock having an aggregate offering price of up to $5,000,000 from time to time through B. Riley acting as its sales agent. The Company will pay B. Riley a commission rate equal to 3.0% of the gross proceeds from the sale of any shares of common stock sold through B. Riley as agent. For the three months ended December 31, 2017, the Company sold 228,000 shares of common stock for gross proceeds of $1,034,000 and net proceeds of $968,000 after deducting commissions and other offering expenses. Common Stock Issued to Services Provider During the nine months ended December 31, 2017, the Company entered into an agreement with Actual, Inc., a firm that provides marketing and branding consulting services. On July 27, 2017, the Company issued 2,570 shares of restricted common stock valued at $6.74 per share and on August 22, 2017, the Company issued 3,133 shares of restricted common stock valued at $5.53 per share. The aggregate fair market value of the common stock issued in July and August was $35,000. On December 1, 2017, the Company issued 5,479 shares of restricted common stock valued at $5.02 per share. The aggregate fair market value of the common stock issued was $27,000. The Company has determined that the fair value of the common stock was more readily determinable than the fair value of the services rendered. Accordingly, during the three and nine months ended December 31, 2017, the Company recorded $28,000 and $62,000, respectively, of expense related to common stock issued. The expense was recorded as selling, general and administrative expense in the accompanying condensed consolidated statement of comprehensive (loss) income for the three and nine months ended December 31, 2017. |
8. Stock-Based Compensation
8. Stock-Based Compensation | 9 Months Ended |
Dec. 31, 2017 | |
Share-based Compensation Arrangement by Share-based Payment Award, Additional General Disclosures [Abstract] | |
Stock-Based Compensation | On April 1, 2017, the Company adopted ASU 2016-09 and, as a result, made a Company-wide accounting policy change with respect to accounting for forfeitures. The Company applied a modified retrospective approach for adoption of the new policy and accordingly recorded an $11,000 increase to opening accumulated deficit at April 1, 2017. In accordance with the adoption of the accounting policy, the Company no longer estimates forfeitures based on historical experience and no longer reduces compensation expense based on the expected forfeitures. Beginning April 1, 2017, the Company will record forfeitures as they occur and will reduce compensation cost at the time of forfeiture. The weighted average grant date fair values of options granted during the nine months ended December 31, 2017 was $6.01. Share-based awards compensation expense is as follows: Three Months Nine Months Ended Ended December 31, December 31, 2017 2016 2017 2016 Cost of service revenue $ 43,000 $ 63,000 $ 136,000 $ 197,000 Research and development 38,000 77,000 128,000 201,000 Selling, general and administrative 584,000 774,000 1,266,000 1,334,000 Total stock-based compensation $ 665,000 $ 914,000 $ 1,530,000 $ 1,732,000 At December 31, 2017, there were unrecognized compensation costs of $2,636,000 related to stock options which is expected to be recognized over a weighted-average amortization period of 2.20 years. At December 31, 2017, there were unrecognized compensation costs of $178,000 related to restricted stock which is expected to be recognized over a weighted-average amortization period of 1.66 years. Stock-Based Award Activity On April 1, 2017, pursuant to “evergreen” provisions in the 2011 Stock Incentive Plan and the 2016 Stock Incentive Plan, the number of shares authorized for issuance in the 2011 Plan increased by 643,383 shares and the number of shares authorized for issuance in the 2016 Plan increased by 343,137 shares. Stock options award activity is as follows: Number of Weighted- Weighted- Aggregate Outstanding at April 1, 2017 899,000 $ 17.87 Options granted 536,000 6.83 Options exercised (1,000 ) 5.27 Options forfeited (42,000 ) 6.77 Options expired (7,000 ) 228.22 Outstanding at December 31, 2017 1,385,000 $ 12.76 7.68 $ 128,000 Exercisable at December 31, 2017 757,000 $ 17.92 6.50 $ 90,000 The aggregate intrinsic value of stock options is calculated as the difference between the exercise price of the underlying stock options and the fair value of the Company’s common stock, or $5.45 per share at December 31, 2017. Restricted stock award activity is as follows: Number of Shares Weighted Average Award Date Fair Value per Share Unvested restricted stock awards outstanding at April 1, 2017 34,000 $ 7.27 Restricted stock awards granted 98,000 5.49 Restricted stock awards vested (99,000 ) 5.78 Unvested restricted stock awards outstanding at December 31, 2017 33,000 $ 6.46 No income tax benefit has been recognized relating to stock-based compensation expense and no tax benefits have been realized from exercised stock options. The Company did not capitalize any cost associated with stock-based compensation. The Company issues new shares of common stock upon exercise of stock options or release of restricted stock awards. |
9. Income Taxes
9. Income Taxes | 9 Months Ended |
Dec. 31, 2017 | |
Income Tax Disclosure [Abstract] | |
Income Taxes | The Company has completed a study to assess whether a change in control has occurred or whether there have been multiple changes of control since the Company’s formation through March 31, 2017. The Company determined, based on the results of the study, no change in control occurred for purposes of Internal Revenue Code section 382. The Company, after considering all available evidence, fully reserved its deferred tax assets since it is more likely than not, such benefits, will not be realized in future periods. The Company incurred losses for both financial reporting and income tax purposes for the year ended March 31, 2017. Accordingly, the Company is continuing to fully reserve for its deferred tax assets. The Company will continue to evaluate its deferred tax assets to determine whether any changes in circumstances could affect the realization of their future benefit. If it is determined in future periods that portions of the Company’s deferred income tax assets satisfy the realization standards, the valuation allowance will be reduced accordingly. As a result of certain realization requirements of Accounting Standards Codification Topic 718, the Company’s deferred tax assets and liabilities do not include certain deferred tax assets at December 31, 2017 that arose directly from tax deductions related to equity compensation in excess of compensation recognized for financial reporting purposes. Equity will be increased by approximately $533,000 if and when such deferred tax assets are ultimately realized. On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act makes broad and complex changes to the U.S. tax code that will affect the Company’s fiscal year ending March 31, 2018, including, but not limited to, reducing the U.S. federal corporate tax rate. The Tax Act reduces the federal corporate tax rate to 21 percent in the fiscal year ending March 31, 2018. Section 15 of the Internal Revenue Code stipulates that our fiscal year ending March 31, 2018, will have a blended corporate tax rate of approximately 30 percent, which is based on the applicable tax rates before and after the Tax Act and the number of days in the year. The reduction of the corporate tax rate to 21% will cause the Company to reduce its deferred tax asset, consisting primarily of net operating loss carry forwards, research and development tax credit carry-forwards and stock based compensation and adjust the valuation allowance against the deferred tax asset from approximately $42 million as of March 31, 2017 to approximately $28 million. The effect of this discrete event has no effect on the basic condensed consolidated financial statements for the three and nine month period ended December 31, 2017. The changes included in the Tax Act are broad and complex. The final impacts of the Tax Act may differ from the above estimate, possibly materially, due to, among other things, changes in interpretations of the Tax Act, any legislative action to address questions that arise because of the Tax Act, any changes in accounting standards for income taxes or related interpretations in response to the Tax Act, or any updates or changes to estimates the company has utilized to calculate the transition impact. The Securities Exchange Commission has issued rules that would allow for a measurement period of up to one year after the enactment date of the Tax Act to finalize the recording of the related tax impacts. We currently anticipate finalizing and recording any resulting adjustments within one year after the enactment date of the Tax Act. |
10. Segment and Geographic Info
10. Segment and Geographic Information | 9 Months Ended |
Dec. 31, 2017 | |
Segment Reporting [Abstract] | |
Segment and Geographic Information | The Company generates product revenues from products, which are sold into the human and animal healthcare markets, and the Company generates service revenues from laboratory testing services, which are provided to medical device manufacturers. Additionally, the Company provides technical services to Invekra. The following table shows the Company’s product revenues by geographic region: Three months ended December 31, 2017 2016 $ Change % Change United States $ 2,883,000 $ 1,671,000 $ 1,212,000 73% Latin America 772,000 465,000 307,000 66% Europe and Rest of the World 992,000 1,038,000 (46,000 ) (4% ) Total $ 4,647,000 $ 3,174,000 $ 1,473,000 46% Nine months ended 2017 2016 $ Change % Change United States $ 7,010,000 $ 4,741,000 $ 2,269,000 48% Latin America 2,095,000 465,000 1,630,000 351% Europe and Rest of the World 3,289,000 2,952,000 337,000 11% Total $ 12,394,000 $ 8,158,000 $ 4,236,000 52% In connection with the Company’s sale of its Latin America business to Invekra, product related revenues were reclassified from continuing operations to discontinued operations. The amounts were classified in the prior periods as Latin America sales. The amounts reclassified are as follows: Three Months Ended December 31, 2017 2016 Product revenues $ – $ 359,000 Product license fees and royalties – 262,000 Total product related revenues $ – $ 621,000 Nine Months Ended December 31, 2017 2016 Product revenues $ – $ 2,693,000 Product license fees and royalties – 412,000 Total product related revenues $ – $ 3,105,000 The Company’s service revenues amounted to $196,000 and $187,000 for the three months ended December 31, 2017 and 2016, respectively. The Company’s service revenues amounted to $609,000 and $638,000 for the nine months ended December 31, 2017 and 2016, respectively. |
11. Significant Customer Concen
11. Significant Customer Concentrations | 9 Months Ended |
Dec. 31, 2017 | |
Risks and Uncertainties [Abstract] | |
Significant Customer Concentrations | For the three months ended December 31, 2017, one customer represented 21% of net revenue, one customer represented 16% of net revenue, one customer represented 14% of net revenue and one customer represented 12% of net revenue. For the three months ended December 31, 2016, one customer represented 22%, one customer represented 16%, one customer represented 13% and one customer represented 10% of net revenue. For the nine months ended December 31, 2017, one customer represented 21% of net revenue, one customer represented 16% of net revenue, one customer represented 13% of net revenue and one customer represented 12% of net revenue. For the nine months ended December 31, 2016, one customer represented 27% of net revenue. At December 31, 2017, one customer represented 36%, one customer represented 17%, and one customer represented 15% of the accounts receivable balance. At March 31, 2017, one customer represented 26%, one customer represented 12%, and one customer represented 10% of the accounts receivable balance. |
12. Subsequent Events
12. Subsequent Events | 9 Months Ended |
Dec. 31, 2017 | |
Subsequent Events [Abstract] | |
Subsequent Events | Stock Issued to Independent Directors and Chief Executive Officers On January 2, 2018, the Company granted discretionary stock bonuses to all directors of the Company, including its Chief Executive Officer and Director, Jim Schutz, for their services in connection with the turn-around of our Company and in an effort to increase the stock ownership of the Board in the amount of $100,000 or 17,211 shares of common stock at $5.81 per share, each, which shares are immediately vested upon grant. In addition, on January 2, 2018, the Company’s Board of Directors awarded an additional stock bonus of $50,000 or 8,606 shares of common stock subject to the same conditions to its long-standing director Jay Birnbaum for his 10 years of services and longevity on our Board. The stock awards include a 40% tax gross up paid in cash or approximately $180,000 to the directors and $40,000 to the Chief Executive Officer. |
3. Summary of Significant Acc18
3. Summary of Significant Accounting Policies (Policies) | 9 Months Ended |
Dec. 31, 2017 | |
Accounting Policies [Abstract] | |
Use of Estimates | Use of Estimates The preparation of condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent liabilities at the dates of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from these estimates. Significant estimates and assumptions include reserves and write-downs related to receivables and inventories, the recoverability of long-lived assets, the valuation allowance relating to the Company’s deferred tax assets, valuation of equity and derivative instruments, debt discounts, valuation of investments, determination of the relative selling prices of the components sold to Invekra, and the estimated amortization periods of upfront product licensing fees received from customers. Periodically, the Company evaluates and adjusts estimates accordingly. The allowance for doubtful accounts represents probable credit losses of $13,000 and $14,000 at December 31, 2017 and March 31, 2017, respectively. Additionally, at December 31, 2017 and March 31, 2017 the Company has allowances of $1,423,000 and $672,000, respectively, related to potential discounts, returns, distributor fees and rebates. The allowances are included in Accounts Receivable, net in the accompanying condensed consolidated balance sheets. |
Basic and Diluted Net Income (Loss) per Common Share | Basic and Diluted Net Income (Loss) per common share Basic earnings and loss per share for both continuing and discontinued operations are computed by dividing the net income or loss available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted earnings per share is computed using the weighted average number of common shares and, if dilutive, potential common shares outstanding during the period. Potential common shares consist of the incremental common shares issuable upon the exercise of stock options (using the treasury stock method) and warrants (using the if-converted method). Diluted loss per share excludes the shares issuable upon the exercise of stock options and warrants from the calculation of net loss per share as their effect would be anti-dilutive. Three Months Ended Nine Months Ended December 31, December 31, 2017 2016 2017 2016 Numerator: Net (loss) income from continuing operations $ (3,187,000 ) $ 763,000 $ (9,565,000 ) $ (5,740,000 ) Net income from discontinued operations (net of tax) – 15,465,000 – 17,450,000 Net (loss) income $ (3,187,000 ) $ 16,228,000 $ (9,565,000 ) $ 11,710,000 Denominator: Weighted-average number of common shares outstanding - basic 4,392,000 4,225,000 4,333,000 4,209,000 Options to purchase common stock – 3,000 – – Weighted-average number of common shares outstanding - diluted 4,392,000 4,228,000 4,333,000 4,209,000 Basic – net (loss) income from continuing operations $ (0.73 ) $ 0.18 $ (2.21 ) $ (1.36 ) Basic – net income from discontinued operations (net of tax) – 3.66 – 4.15 $ (0.73 ) $ 3.84 $ (2.21 ) $ 2.79 Diluted – net loss income from continuing operations $ (0.73 ) $ 0.18 $ (2.21 ) $ (1.36 ) Diluted – net income from discontinued operations (net of tax) – 3.66 – 4.15 $ (0.73 ) $ 3.84 $ (2.21 ) $ 2.79 The following securities were excluded from the weighted average dilutive common shares outstanding because their inclusion would have been antidilutive. Three Months Ended Nine Months Ended December 31, December 31, 2017 2016 2017 2016 Restricted stock units 33,000 – 33,000 – Options to purchase common stock 1,385,000 848,000 1,385,000 851,000 Warrants to purchase common stock 1,333,000 1,365,000 1,333,000 1,365,000 2,751,000 2,213,000 2,751,000 2,216,000 |
Revenue Recognition and Accounts Receivable | Revenue Recognition and Accounts Receivable The Company generates revenue from sales of its products to a customer base including hospitals, medical centers, doctors, pharmacies, distributors and wholesalers. The Company sells products directly to end users and to distributors. The Company also has entered into agreements to license its technology and products. The Company also provides regulatory compliance testing and quality assurance services to medical device and pharmaceutical companies. The Company records revenue when (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred, (iii) the fee is fixed or determinable, and (iv) collectability of the sale is reasonably assured. The Company requires all product sales to be supported by evidence of a sale transaction that clearly indicates the selling price to the customer, shipping terms and payment terms. Evidence of an arrangement generally consists of a contract or purchase order approved by the customer. The Company has ongoing relationships with certain customers from which it customarily accepts orders by telephone in lieu of purchase orders. The Company recognizes revenue at the time it receives confirmation that the goods were either tendered at their destination, when shipped “FOB destination,” or transferred to a shipping agent, when shipped “FOB shipping point.” Delivery to the customer is deemed to have occurred when the customer takes title to the product. Generally, title passes to the customer upon shipment, but could occur when the customer receives the product based on the terms of the agreement with the customer. The selling prices of all goods are fixed, and agreed to with the customer, prior to shipment. Selling prices are generally based on established list prices. The right to return product is customarily based on the terms of the agreement with the customer. The Company estimates and accrues for potential returns and records this as a reduction of revenue in the same period the related revenue is recognized. Additionally, distribution fees are paid to certain wholesale distributors based on contractually determined rates. The Company estimates and accrues the fee on shipment to the respective wholesale distributors and recognizes the fee as a reduction of revenue in the same period the related revenue is recognized. The Company also offers cash discounts to certain customers, generally 2% of the sales price, as an incentive for prompt payment. The Company accounts for cash discounts by reducing accounts receivable by the prompt pay discount amount and recognizes the discount as a reduction of revenue in the same period the related revenue is recognized. Additionally, the Company participates in certain rebate programs which provide discounted prescriptions to qualified patients. The Company contracts with a third-party to administer the program. The Company estimates and accrues for future rebates based on historical data for rebate redemption rates and the historical value of redemptions. Rebates are recognized as a reduction of revenue in the same period the related revenue is recognized. The Company evaluates the creditworthiness of new customers and monitors the creditworthiness of its existing customers to determine whether an event or changes in their financial circumstances would raise doubt as to the collectability of a sale at the time in which a sale is made. Payment terms on sales made in the United States are generally 30 to 60 days and are extended up to 90 days for initial product launches, payment terms internationally generally range from prepaid prior to shipment to 90 days. In the event a sale is made to a customer under circumstances in which collectability is not reasonably assured, the Company either requires the customer to remit payment prior to shipment or defers recognition of the revenue until payment is received. The Company maintains a reserve for amounts which may not be collectible due to risk of credit losses. In the event a sale is made to a customer under circumstances in which returns cannot be estimated, the Company defers recognition of the revenue until sell-through is confirmed. Product license revenue is generated through agreements with strategic partners for the commercialization of Microcyn® products. The terms of the agreements sometimes include non-refundable upfront fees. The Company analyzes multiple element arrangements to determine whether the elements can be separated. Analysis is performed at the inception of the arrangement and as each product is delivered. If a product or service is not separable, the combined deliverables are accounted for as a single unit of accounting and recognized over the performance obligation period. When appropriate, the Company defers recognition of non-refundable upfront fees. If the Company has continuing performance obligations then such up-front fees are deferred and recognized over the period of continuing involvement. The Company recognizes royalty revenues from licensed products upon the sale of the related products. Revenue from consulting contracts is recognized as services are provided. Revenue from testing contracts is recognized as tests are completed and a final report is sent to the customer. |
Inventories | Inventories Inventories are stated at the lower of cost, cost being determined on a standard cost basis (which approximates actual cost on a first-in, first-out basis), or net realizable value. Due to changing market conditions, estimated future requirements, age of the inventories on hand and production of new products, the Company regularly reviews inventory quantities on hand and records a provision to write down excess and obsolete inventory to its estimated net realizable value. The Company recorded reserves to reduce the carrying amounts of inventories to their net realizable value in the amounts of $201,000 and $61,000 at December 31, 2017 and March 31, 2017, respectively. |
Reclassifications | Reclassifications Certain prior period amounts have been reclassified for comparative purposes to conform to the fiscal 2018 presentation. These reclassifications have no impact on the Company’s previously reported condensed consolidated net loss. |
Subsequent Events | Subsequent Events The Company evaluates events that have occurred after the balance sheet date but before the financial statements are issued. Based upon the evaluation, the Company did not identify any recognized or non-recognized subsequent events that would have required adjustment or disclosure in the condensed consolidated financial statements (Note 11). |
Adoption of Recent Accounting Standards | Adoption of Recent Accounting Standards In March 2016 the FASB issued ASU No. 2016-09, Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting On April 1, 2017, the Company adopted ASU No. 2016-09. As a result of adopting ASU No. 2016-09, the Company has made an accounting policy election to account for forfeitures as they occur. This change has been applied on a modified retrospective basis, with no material impacts on the Company’s financial statements. The adoption of ASU No. 2016-09 also requires excess tax benefits and tax deficiencies be recorded in the income statement as opposed to additional paid-in capital when the awards vest or are settled and recognize all previously unrecognized excess tax benefits and tax deficiencies upon adoption as a cumulative-effect adjustment to retained earnings. As of April 1, 2017, the Company recognized excess tax benefit of approximately $533,000 as an increase to deferred tax assets. However, the entire amount was offset by a full valuation allowance. Accordingly, no cumulative-effect adjustment to retained earnings was recorded as of December 31, 2017. Additionally, the adoption of ASU No. 2016-09 related to the accounting for minimum statutory withholding tax requirements and cash paid by an employer when directly withholding shares for tax-withholding purposes had no impact on the Company's current consolidated financial statements or on any prior period financial statements presented. |
Recent Accounting Standards | Recent Accounting Standards Leases In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842) Leases (Topic 840) Amendments to SEC Paragraphs Pursuant to the Staff Announcement at the July 20, 2017 EITF Meeting and Rescission of Prior SEC Staff Announcements and Observer Comments Revenue In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers Principal versus Agent Considerations (Reporting Revenue Gross versus Net) Identifying Performance Obligations and Licensing Narrow-Scope Improvements and Practical Expedients Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers Revenue Recognition (Topic 605), Revenue from Contracts with Customers (Topic 606), Leases (Topic 840), and Leases (Topic 842), Business Combinations In January 2017, the FASB issued an ASU 2017-01, Business Combinations (Topic 805) Clarifying the Definition of a Business Stock Compensation In May 2017, the FASB issued ASU No. 2017-09, Compensation–Stock Compensation Scope of Modification Accounting Accounting standards that have been issued or proposed by the FASB, the SEC or other standard setting bodies that do not require adoption until a future date are not expected to have a material impact on the consolidated financial statements upon adoption. |
3. Summary of Significant Acc19
3. Summary of Significant Accounting Policies (Tables) | 9 Months Ended |
Dec. 31, 2017 | |
Accounting Policies [Abstract] | |
Reconciliation of net income (loss) per share | Three Months Ended Nine Months Ended December 31, December 31, 2017 2016 2017 2016 Numerator: Net (loss) income from continuing operations $ (3,187,000 ) $ 763,000 $ (9,565,000 ) $ (5,740,000 ) Net income from discontinued operations (net of tax) – 15,465,000 – 17,450,000 Net (loss) income $ (3,187,000 ) $ 16,228,000 $ (9,565,000 ) $ 11,710,000 Denominator: Weighted-average number of common shares outstanding - basic 4,392,000 4,225,000 4,333,000 4,209,000 Options to purchase common stock – 3,000 – – Weighted-average number of common shares outstanding - diluted 4,392,000 4,228,000 4,333,000 4,209,000 Basic – net (loss) income from continuing operations $ (0.73 ) $ 0.18 $ (2.21 ) $ (1.36 ) Basic – net income from discontinued operations (net of tax) – 3.66 – 4.15 $ (0.73 ) $ 3.84 $ (2.21 ) $ 2.79 Diluted – net loss income from continuing operations $ (0.73 ) $ 0.18 $ (2.21 ) $ (1.36 ) Diluted – net income from discontinued operations (net of tax) – 3.66 – 4.15 $ (0.73 ) $ 3.84 $ (2.21 ) $ 2.79 |
Schedule of antidilutive shares | Three Months Ended Nine Months Ended December 31, December 31, 2017 2016 2017 2016 Restricted stock units 33,000 – 33,000 – Options to purchase common stock 1,385,000 848,000 1,385,000 851,000 Warrants to purchase common stock 1,333,000 1,365,000 1,333,000 1,365,000 2,751,000 2,213,000 2,751,000 2,216,000 |
4. Disposition of Latin Ameri20
4. Disposition of Latin American Operations (Tables) | 9 Months Ended |
Dec. 31, 2017 | |
Discontinued Operations and Disposal Groups [Abstract] | |
Schedule of income from discontinued operations | Three Months Ended December 31, Nine Months Ended December 31, 2017 2016 2017 2016 Revenues $ – $ 621,000 $ – $ 3,105,000 Cost of Revenues – 62,000 – 561,000 Income from discontinued operations before tax 559,000 2,544,000 Gain on disposal of discontinued operations before income taxes – 19,487,000 – 19,487,000 Total income from discontinued operations, before tax – 20,046,000 – 22,031,000 Income Tax benefit (expense) – (4,581,000 ) – (4,581,000 ) Income from discontinued operations, net of tax $ – $ 15,465,000 $ – $ 17,450,000 |
5. Inventories (Tables)
5. Inventories (Tables) | 9 Months Ended |
Dec. 31, 2017 | |
Inventory Disclosure [Abstract] | |
Schedule of inventories | December 31, March 31, 2017 2017 Raw materials $ 1,526,000 $ 1,480,000 Finished goods 1,175,000 741,000 $ 2,701,000 $ 2,221,000 |
8. Stock-Based Compensation (Ta
8. Stock-Based Compensation (Tables) | 9 Months Ended |
Dec. 31, 2017 | |
Share-based Compensation Arrangement by Share-based Payment Award, Additional General Disclosures [Abstract] | |
Employee stock-based compensation expense | Three Months Nine Months Ended Ended December 31, December 31, 2017 2016 2017 2016 Cost of service revenue $ 43,000 $ 63,000 $ 136,000 $ 197,000 Research and development 38,000 77,000 128,000 201,000 Selling, general and administrative 584,000 774,000 1,266,000 1,334,000 Total stock-based compensation $ 665,000 $ 914,000 $ 1,530,000 $ 1,732,000 |
Schedule of option activity | Number of Weighted- Weighted- Aggregate Outstanding at April 1, 2017 899,000 $ 17.87 Options granted 536,000 6.83 Options exercised (1,000 ) 5.27 Options forfeited (42,000 ) 6.77 Options expired (7,000 ) 228.22 Outstanding at December 31, 2017 1,385,000 $ 12.76 7.68 $ 128,000 Exercisable at December 31, 2017 757,000 $ 17.92 6.50 $ 90,000 |
Restricted Stock Award Activity | Number of Shares Weighted Average Award Date Fair Value per Share Unvested restricted stock awards outstanding at April 1, 2017 34,000 $ 7.27 Restricted stock awards granted 98,000 5.49 Restricted stock awards vested (99,000 ) 5.78 Unvested restricted stock awards outstanding at December 31, 2017 33,000 $ 6.46 |
10. Segment and Geographic In23
10. Segment and Geographic Information (Tables) | 9 Months Ended |
Dec. 31, 2017 | |
Segment Reporting [Abstract] | |
Segment and Geographic Information | Three months ended December 31, 2017 2016 $ Change % Change United States $ 2,883,000 $ 1,671,000 $ 1,212,000 73% Latin America 772,000 465,000 307,000 66% Europe and Rest of the World 992,000 1,038,000 (46,000 ) (4% ) Total $ 4,647,000 $ 3,174,000 $ 1,473,000 46% Nine months ended 2017 2016 $ Change % Change United States $ 7,010,000 $ 4,741,000 $ 2,269,000 48% Latin America 2,095,000 465,000 1,630,000 351% Europe and Rest of the World 3,289,000 2,952,000 337,000 11% Total $ 12,394,000 $ 8,158,000 $ 4,236,000 52% |
Product revenues reclassified from continued to discontinued operations | Three Months Ended December 31, 2017 2016 Product revenues $ – $ 359,000 Product license fees and royalties – 262,000 Total product related revenues $ – $ 621,000 Nine Months Ended December 31, 2017 2016 Product revenues $ – $ 2,693,000 Product license fees and royalties – 412,000 Total product related revenues $ – $ 3,105,000 |
2. Liquidity and Financial Co24
2. Liquidity and Financial Condition (Details Narrative) - USD ($) | 3 Months Ended | 9 Months Ended | |||
Dec. 31, 2017 | Dec. 31, 2016 | Dec. 31, 2017 | Dec. 31, 2016 | Mar. 31, 2017 | |
Net income (loss) | $ (3,187,000) | $ 16,228,000 | $ (9,565,000) | $ 11,710,000 | |
Accumulated deficit | (152,677,000) | (152,677,000) | $ (143,101,000) | ||
Working capital | $ 12,279,000 | 12,279,000 | $ 19,355,000 | ||
Proceeds from sale of stock, net | $ 968,000 | $ 0 | |||
At Market Issuance Sales Agreement [Member] | |||||
Stock issued new, shares | 228,000 | ||||
Proceeds from sale of stock, gross | $ 1,034,000 | ||||
Proceeds from sale of stock, net | $ 968,000 |
3. Summary of Significant Acc25
3. Summary of Significant Accounting Policies (Details - Income (Loss) per share) - USD ($) $ / shares in Units, $ in Thousands | 3 Months Ended | 9 Months Ended | ||
Dec. 31, 2017 | Dec. 31, 2016 | Dec. 31, 2017 | Dec. 31, 2016 | |
Numerator: | ||||
Net (loss) income from continuing operations | $ (3,187) | $ 763 | $ (9,565) | $ (5,740) |
Net income from discontinued operations (net of tax) | 0 | 15,465 | 0 | 17,450 |
Net (loss) income | $ (3,187) | $ 16,228 | $ (9,565) | $ 11,710 |
Denominator: | ||||
Weighted-average number of common shares outstanding - basic | 4,392,000 | 4,225,000 | 4,333,000 | 4,209,000 |
Options to purchase common stock | 0 | 3,000 | 0 | 0 |
Weighted-average number of common shares outstanding - diluted | 4,392,000 | 4,228,000 | 4,333,000 | 4,209,000 |
Basic – net (loss) income from continuing operations | $ (0.73) | $ 0.18 | $ (2.21) | $ (1.36) |
Basic – net income from discontinued operations (net of tax) | 0 | 3.66 | 0 | 4.15 |
Basic - net income (loss) per share | (0.73) | 3.84 | (2.21) | 2.79 |
Diluted – net loss income from continuing operations | (0.73) | 0.18 | (2.21) | (1.36) |
Diluted – net income from discontinued operations (net of tax) | 0 | 3.66 | 0 | 4.15 |
Diluted - net income (loss) per share | $ (0.73) | $ 3.84 | $ (2.21) | $ 2.79 |
3. Summary of Significant Acc26
3. Summary of Significant Accounting Policies (Details - Antidilutive shares) - shares | 3 Months Ended | 9 Months Ended | ||
Dec. 31, 2017 | Dec. 31, 2016 | Dec. 31, 2017 | Dec. 31, 2016 | |
Antidilutive shares | 2,751,000 | 2,213,000 | 2,751,000 | 2,216,000 |
Restricted Stock Units (RSUs) [Member] | ||||
Antidilutive shares | 33,000 | 0 | 33,000 | 0 |
Stock Options [Member] | ||||
Antidilutive shares | 1,385,000 | 848,000 | 1,385,000 | 851,000 |
Warrants [Member] | ||||
Antidilutive shares | 1,333,000 | 1,365,000 | 1,333,000 | 1,365,000 |
3. Summary of Significant Acc27
3. Summary of Significant Accounting Policies (Details Narrative) - USD ($) | Dec. 31, 2017 | Mar. 31, 2017 |
Accounting Policies [Abstract] | ||
Allowance for doubtful accounts | $ 13,000 | $ 14,000 |
Allowance for potential discounts, returns, distributor fees and rebates | 1,423,000 | 672,000 |
Inventory reserves | $ 201,000 | $ 61,000 |
4. Disposition of Latin Ameri28
4. Disposition of Latin American Operations (Details - Revenues of discontinued operations) - USD ($) | 3 Months Ended | 9 Months Ended | ||
Dec. 31, 2017 | Dec. 31, 2016 | Dec. 31, 2017 | Dec. 31, 2016 | |
Income from discontinued operations, net of tax | $ 0 | $ 15,465,000 | $ 0 | $ 17,450,000 |
Latin American Business [Member] | ||||
Revenues | 0 | 621,000 | 0 | 3,105,000 |
Cost of revenues | 0 | 62,000 | 0 | 561,000 |
Income from discontinued operations before tax | 0 | 559,000 | 0 | 2,544,000 |
Gain on disposal of discontinued operations before income taxes | 0 | 19,487,000 | 19,487,000 | |
Total income from discontinued operations, before tax | 20,046,000 | 22,031,000 | ||
Income tax expense | 0 | (4,581,000) | 0 | (4,581,000) |
Income from discontinued operations, net of tax | $ 0 | $ 15,465,000 | $ 0 | $ 17,450,000 |
4. Disposition of Latin Ameri29
4. Disposition of Latin American Operations (Details Narrative) - USD ($) | 3 Months Ended | 7 Months Ended | 9 Months Ended | 12 Months Ended | ||
Dec. 31, 2017 | Dec. 31, 2016 | Oct. 27, 2016 | Dec. 31, 2017 | Dec. 31, 2016 | Mar. 31, 2017 | |
Service revenue | $ 196,000 | $ 187,000 | $ 609,000 | $ 638,000 | ||
Product revenue | 4,647,000 | 3,174,000 | 12,394,000 | 8,158,000 | ||
Latin American Assets [Member] | ||||||
Cash received on sale of assets | $ 18,000,000 | $ 1,500,000 | ||||
Total proceeds from sale | $ 22,000,000 | |||||
Service revenue | 39,000 | |||||
Interest income | 33,000 | |||||
Product revenue | $ 772,000 | $ 465,000 | $ 2,095,000 | $ 465,000 |
5. Inventories (Details)
5. Inventories (Details) - USD ($) | Dec. 31, 2017 | Mar. 31, 2017 |
Inventory Disclosure [Abstract] | ||
Raw materials, net | $ 1,526,000 | $ 1,480,000 |
Finished goods, net | 1,175,000 | 741,000 |
Inventories, net | $ 2,701,000 | $ 2,221,000 |
6. Commitments and Contingenc31
6. Commitments and Contingencies (Details Narrative) | 9 Months Ended |
Dec. 31, 2017USD ($) | |
Commitments and Contingencies Disclosure [Abstract] | |
Potential severance | $ 1,417,000 |
Aggregated annual salaries | $ 1,167,000 |
7. Stockholders' Equity (Detail
7. Stockholders' Equity (Details Narrative) - USD ($) | 3 Months Ended | 9 Months Ended | ||||||
Dec. 31, 2017 | Dec. 31, 2016 | Dec. 31, 2017 | Dec. 31, 2016 | Dec. 01, 2017 | Aug. 22, 2017 | Jul. 27, 2017 | Mar. 31, 2017 | |
Convertible preferred stock authorized | 714,286 | 714,286 | 714,286 | |||||
Convertible preferred stock par value | $ 0.0001 | $ 0.0001 | $ 0.0001 | |||||
Common stock par value | $ .0001 | $ .0001 | $ 0.0001 | |||||
Common stock shares authorized | 12,000,000 | 12,000,000 | 12,000,000 | |||||
Proceeds from sale of stock, net | $ 968,000 | $ 0 | ||||||
Share based compensation expense | $ 665,000 | $ 914,000 | 1,530,000 | 1,732,000 | ||||
Selling, general and administrative [Member] | ||||||||
Share based compensation expense | 584,000 | $ 774,000 | 1,266,000 | $ 1,334,000 | ||||
Actual, Inc. [Member] | Selling, general and administrative [Member] | ||||||||
Share based compensation expense | $ 28,000 | $ 62,000 | ||||||
Actual, Inc. [Member] | July 27, 2017 [Member] | ||||||||
Stock issued for services, shares | 2,570 | |||||||
Stock issued for services, per share price | $ 6.74 | |||||||
Actual, Inc. [Member] | August 22, 2017 [Member] | ||||||||
Stock issued for services, shares | 3,133 | |||||||
Stock issued for services, per share price | $ 5.53 | |||||||
Actual, Inc. [Member] | July and August issuances [Member] | ||||||||
Stock issued for services, value | $ 35,000 | |||||||
Actual, Inc. [Member] | December 1, 2017 [Member] | ||||||||
Stock issued for services, shares | 5,479 | |||||||
Stock issued for services, per share price | $ 5.02 | |||||||
Stock issued for services, value | $ 27,000 | |||||||
At Market Issuance Sales Agreement [Member] | ||||||||
Stock issued new, shares | 228,000 | |||||||
Proceeds from sale of stock, gross | $ 1,034,000 | |||||||
Proceeds from sale of stock, net | $ 968,000 |
8. Stock-Based Compensation (De
8. Stock-Based Compensation (Details-Stock-based compensation) - USD ($) | 3 Months Ended | 9 Months Ended | ||
Dec. 31, 2017 | Dec. 31, 2016 | Dec. 31, 2017 | Dec. 31, 2016 | |
Total stock-based compensation | $ 665,000 | $ 914,000 | $ 1,530,000 | $ 1,732,000 |
Cost of service revenue [Member] | ||||
Total stock-based compensation | 43,000 | 63,000 | 136,000 | 197,000 |
Research and development [Member] | ||||
Total stock-based compensation | 38,000 | 77,000 | 128,000 | 201,000 |
Selling, general and administrative [Member] | ||||
Total stock-based compensation | $ 584,000 | $ 774,000 | $ 1,266,000 | $ 1,334,000 |
8. Stock-Based Compensation (34
8. Stock-Based Compensation (Details-Option activity) | 9 Months Ended |
Dec. 31, 2017USD ($)$ / sharesshares | |
Options | |
Outstanding at beginning of period | shares | 899,000 |
Granted | shares | 536,000 |
Exercised | shares | (1,000) |
Forfeited | shares | (42,000) |
Expired | shares | (7,000) |
Outstanding at end of period | shares | 1,385,000 |
Exercisable at end of period | shares | 757,000 |
Weighted Average Exercise Price | |
Outstanding at beginning of period | $ / shares | $ 17.87 |
Granted | $ / shares | 6.83 |
Exercised | $ / shares | 5.27 |
Forfeited | $ / shares | 6.77 |
Expired | $ / shares | 228.22 |
Outstanding at end of period | $ / shares | 12.76 |
Exercisable at end of period | $ / shares | $ 17.92 |
Weighted Average Contractual Term | |
Outstanding at end of period | 7 years 8 months 5 days |
Exercisable at end of period | 6 years 6 months |
Aggregate Intrinsic Value | |
Outstanding at end of period | $ | $ 128,000 |
Exercisable at end of period | $ | $ 90,000 |
8. Stock-Based Compensation (35
8. Stock-Based Compensation (Details-Restricted stock activity) | 9 Months Ended |
Dec. 31, 2017$ / sharesshares | |
Restricted stock award activity | |
Unvested restricted stock awards, beginning balance | shares | 34,000 |
Restricted stock awards granted | shares | 98,000 |
Restricted stock awards vested | shares | (99,000) |
Unvested restricted stock awards, ending balance | shares | 33,000 |
Weighted average award date fair value per share, outstanding beginning balance | $ / shares | $ 7.27 |
Weighted average award date fair value per share, granted | $ / shares | 5.49 |
Weighted average award date fair value per share, vested | $ / shares | 5.78 |
Weighted average award date fair value per share, outstanding ending balance | $ / shares | $ 6.46 |
8. Stock-Based Compensation (36
8. Stock-Based Compensation (Details Narrative) | 3 Months Ended | 9 Months Ended |
Dec. 31, 2017USD ($)$ / shares | Dec. 31, 2017USD ($)$ / sharesshares | |
2011 Plan [Member] | ||
Shares authorized for issuance increase | shares | 643,383 | |
2016 Plan [Member] | ||
Shares authorized for issuance increase | shares | 343,137 | |
Stock Options [Member] | ||
Adjustment to accumulated deficit from accounting change | $ 11,000 | |
Weighted average grant date fair values of options granted | $ / shares | $ 6.01 | $ 6.01 |
Unrecognized compensation costs | $ 2,636,000 | $ 2,636,000 |
Weighted average amortization period | 2 years 2 months 12 days | |
Aggregate intrinsic value per share | $ / shares | $ 5.45 | |
Restricted Stock [Member] | ||
Unrecognized compensation costs | $ 178,000 | $ 178,000 |
Weighted average amortization period | 1 year 7 months 28 days |
9. Income Taxes (Details Narrat
9. Income Taxes (Details Narrative) | Dec. 31, 2017USD ($) |
Income Tax Disclosure [Abstract] | |
Possible equity increase due to realization of deferred tax assets | $ 533,000 |
10. Segment and Geographic In38
10. Segment and Geographic Information (Details - Geographic regions) - USD ($) | 3 Months Ended | 9 Months Ended | ||
Dec. 31, 2017 | Dec. 31, 2016 | Dec. 31, 2017 | Dec. 31, 2016 | |
Sales revenue from geographical territories | $ 4,647,000 | $ 3,174,000 | $ 12,394,000 | $ 8,158,000 |
Increase (decrease) in sales revenue | $ 1,473,000 | $ 4,236,000 | ||
Percent change in sales revenue | 46.00% | 52.00% | ||
Sales Revenue, Segment [Member] | United States [Member] | ||||
Sales revenue from geographical territories | $ 2,883,000 | 1,671,000 | $ 7,010,000 | 4,741,000 |
Increase (decrease) in sales revenue | $ 1,212,000 | $ 2,269,000 | ||
Percent change in sales revenue | 73.00% | 48.00% | ||
Sales Revenue, Segment [Member] | Latin America [Member] | ||||
Sales revenue from geographical territories | $ 772,000 | 465,000 | $ 2,095,000 | 465,000 |
Increase (decrease) in sales revenue | $ 307,000 | $ 1,630,000 | ||
Percent change in sales revenue | 66.00% | 351.00% | ||
Sales Revenue, Segment [Member] | Europe and Other [Member] | ||||
Sales revenue from geographical territories | $ 992,000 | $ 1,038,000 | $ 3,289,000 | $ 2,952,000 |
Increase (decrease) in sales revenue | $ (46,000) | $ 337,000 | ||
Percent change in sales revenue | (4.00%) | 11.00% |
10. Segment and Geographic In39
10. Segment and Geographic Information (Details - Reclassified to Discontinued operations) - USD ($) | 3 Months Ended | 9 Months Ended | ||
Dec. 31, 2017 | Dec. 31, 2016 | Dec. 31, 2017 | Dec. 31, 2016 | |
Product revenue | $ 4,647,000 | $ 3,174,000 | $ 12,394,000 | $ 8,158,000 |
Total revenues | 4,843,000 | 3,361,000 | 13,003,000 | 8,796,000 |
Discontinued Operations [Member] | ||||
Product revenue | 0 | 359,000 | 0 | 2,693,000 |
Product license fees and royalties | 0 | 262,000 | 0 | 412,000 |
Total revenues | $ 0 | $ 621,000 | $ 0 | $ 3,105,000 |
10. Segment and Geographic In40
10. Segment and Geographic Information (Details Narrative) - USD ($) $ in Thousands | 3 Months Ended | 9 Months Ended | ||
Dec. 31, 2017 | Dec. 31, 2016 | Dec. 31, 2017 | Dec. 31, 2016 | |
Segment Reporting [Abstract] | ||||
Service revenues | $ 196 | $ 187 | $ 609 | $ 638 |
11. Significant Customer Conc41
11. Significant Customer Concentrations (Details Narrative) | 3 Months Ended | 9 Months Ended | 12 Months Ended | ||
Dec. 31, 2017 | Dec. 31, 2016 | Dec. 31, 2017 | Dec. 31, 2016 | Mar. 31, 2017 | |
Revenues [Member] | Customer A [Member] | |||||
Concentration risk percentage | 21.00% | 22.00% | 21.00% | 27.00% | |
Revenues [Member] | Customer B [Member] | |||||
Concentration risk percentage | 16.00% | 16.00% | 16.00% | ||
Revenues [Member] | Customer C [Member] | |||||
Concentration risk percentage | 14.00% | 13.00% | 13.00% | ||
Revenues [Member] | Customer D [Member] | |||||
Concentration risk percentage | 12.00% | 10.00% | 12.00% | ||
Accounts Receivable [Member] | Customer A [Member] | |||||
Concentration risk percentage | 36.00% | 26.00% | |||
Accounts Receivable [Member] | Customer B [Member] | |||||
Concentration risk percentage | 17.00% | 12.00% | |||
Accounts Receivable [Member] | Customer C [Member] | |||||
Concentration risk percentage | 15.00% | 10.00% |