Annual report pursuant to Section 13 and 15(d)

Commitment and Contingencies

Commitment and Contingencies
12 Months Ended
Dec. 31, 2016
Commitments and Contingencies Disclosure [Abstract]  
Commitment and Contingencies

11. Commitment and Contingencies


The Company currently leases laboratory, manufacturing and office space and equipment under noncancelable operating leases which provide for rent holidays and escalating payments; this lease ends 2019. Lease incentives, including rent holidays, allowances for tenant improvements and rent escalation provisions, are recorded as deferred rent. Rent under operating leases is recognized on a straight-line basis beginning with lease commencement through the end of the lease term. Sublease income is recorded as a reduction of rent expense. For each of the years ended December 31, 2016 and 2015, rental expense was $661,000 and $734,000, respectively. Sublease income was $133,000 and $84,000 during the year ended December 31, 2016 and 2015, respectively. 


The following table summarizes future minimum rental payments required under operating leases that have initial or remaining non-cancelable lease terms in excess of one year as of December 31, 2016 (in thousands):


Year ending December 31:     Operating Leases     Sublease Income     Total  
2017     $ 925     $ (129 )   $ 796  
2018       952       (43 )     909  
2019       980       -       980  
Total minimum lease payments     $ 2,857     $ (172 )   $ 2,685  


The Company has entered into consulting and development agreements with some of its advisors, including some surgeon advisors. The Company has agreed to pay some of the surgeon advisors a portion of the net profits attributable to the sale of specific spine products for which the surgeon advisors provided the Company with consulting and related services related to the conceptualization, development, testing, clearance, approval and/or related matters involving implant products. The Company is obligated to pay royalties to different surgeon advisors in connection with the sale of certain of its implant products. These agreements generally continue until the later of (a) ten years from the date of the agreements, and (b) the expiration of the patent rights relating to the devices covered by the agreements, when rights have been assigned by the individuals to the Company. The Company incurred royalties of $607,000 and $775,000 related to these agreements for the years ended December 31, 2016 and 2015, respectively. None of the royalty arrangements contain minimum royalty payments.


On May 13, 2015, the Company entered into a joint agreement for research and development of silicon nitride based devices. This agreement is effective for a period of five years from the date of commencement. The Company incurred payments of $270,000 and $270,000 related to this agreement for the years ended December 31, 2016 and 2015, respectively.


The Company has executed agreements with certain executive officers of the Company which, upon the occurrence of certain events related to a change in control, call for payments to the executives up to three times their annual salary and accelerated vesting of previously granted stock options.


From time to time, the Company is subject to various claims and legal proceedings covering matters that arise in the ordinary course of its business activities. Management believes any liability that may ultimately result from the resolution of these matters will not have a material adverse effect on the Company’s consolidated financial position, operating results or cash flows.