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Contingent Liabilities and Commitments
 9 Months Ended
Sep. 30, 2018
Contingent Liabilities and Commitments [Abstract]  
CONTINGENT LIABILITIES AND COMMITMENTS
16.CONTINGENT LIABILITIES AND COMMITMENTS

 

Our bylaws, as amended, in effect provide that the Company will indemnify its officers and directors to the maximum extent permitted by Delaware law. In addition, we make similar indemnity undertakings to each director through a separate indemnification agreement with that director. The maximum payment that we may be required to make under such provisions is theoretically unlimited and is impossible to determine. We maintain directors’ and officers’ liability insurance, which may provide reimbursement to the Company for payments made to, or on behalf of, officers and directors pursuant to the indemnification provisions. Our indemnification obligations were grandfathered under the provisions of Codification Topic 460, Guarantees. Accordingly, we have recorded no liability for such obligations as of September 30, 2018. Since our incorporation, we have had no occasion to make any indemnification payment to or on behalf of to any of our officers or directors for any reason.

 

The development, manufacturing and marketing of animal health care products entails an inherent risk that liability claims will be asserted against us during the normal course of business. We are aware of no such claims against us as of the date of this filing. We feel that we have reasonable levels of liability insurance to support our operations.

 

We enter into agreements with third parties in the ordinary course of business under which we are obligated to indemnify such third parties from and against various risks and losses. The precise terms of such indemnities vary with the nature of the agreement. In many cases, we limit the maximum amount of our indemnification obligations, but in some cases those obligations may be theoretically unlimited. We have not incurred material expenses in discharging any of these indemnification obligations, and based on our analysis of the nature of the risks involved, we believe that the fair value of the liabilities potentially arising under these agreements is minimal. Accordingly, we have recorded no liabilities for such obligations as of September 30, 2018.

 

We are committed to purchasing certain key parts (syringes) and services (formulation, filling and packaging of Drug Product) pertaining to our mastitis product exclusively from two contractors. If we do not achieve regulatory approval by December 17, 2019 and the contract counter party were to exercise its right to terminate the agreement, we would be liable for a $100,000 termination fee under one of such agreements and would need to identify and reach agreement with another party to perform these services for us, unless we make an investment to perform these services for ourselves.

 

During the second quarter of 2009, we entered into an exclusive and perpetual license (unless terminated for cause) with the Baylor College of Medicine covering the underlying rotavirus vaccine technology used to generate the specific antibodies for our product line extension, Tri-Shield First DefenseÒ. A milestone payment of $150,000 was due upon regulatory approval of the product, which was achieved during the fourth quarter of 2017. This amount was accrued at December 31, 2017 and paid in January 2018. The license is also subject to a royalty equal to 4% of the sales realized above the average of the sales of our bivalent product line for the years ended December 31, 2016 and 2015, plus a growth assumption of 6%. Earned royalties due are subject to annual minimums of $5,000, $10,000, $15,000, $20,000 and $25,000 for the years ending December 31, 2017, 2018, 2019, 2020, and 2021 (and thereafter), respectively. Royalties of $5,000 were accrued at December 31, 2017 and paid in January 2018. Royalties of $7,500 were accrued as of September 30, 2018.

 

We have committed $682,000 to the purchase of inventory, $77,000 to capital expeditures and $142,000 to other obligations as of September 30, 2018.