Commitments and Contingencies
|9 Months Ended|
Sep. 30, 2022
|Commitments and Contingencies Disclosure [Abstract]|
|Commitments and Contingencies||
9. Commitments and Contingencies
In the ordinary course of business, the Company enters into non-cancellable leases to purchase equipment and for its facilities, including related party leases (see Note 10 – Transactions with Related Parties). Leases are accounted for as operating leases or finance leases, in accordance with ASC 842, Leases.
The Company leases office space in Miami, Florida and research and development laboratory space in Bothell, Washington under operating leases that expire on August 31, 2024 and January 31, 2024, respectively. For operating leases, the weighted average discount rate is 7.2% and the weighted average remaining lease term is 1.5 years.
The following table summarizes the Company’s maturities of operating lease liabilities, by year and in aggregate, as of September 30, 2022 (in thousands):
Schedule of Maturities of Operating Lease Liabilities
As of September 30, 2022, the total operating lease liability of $346,000 is classified as $227,000 current operating lease liabilities and $119,000 long term operating lease liabilities.
The operating lease liabilities summarized above do not include variable common area maintenance (the “CAM”) charges, which are contractual liabilities under the Company’s Bothell, Washington lease. CAM charges for the Bothell, Washington facility are calculated annually based on actual common expenses for the building incurred by the lessor and proportionately billed to tenants based on leased square footage. For the nine months ended September 30, 2022 and 2021, approximately $69,000 and $58,000 of CAM was included in general and administrative operating expenses on the condensed consolidated statements of operations, respectively.
The minimum lease payments above include the amounts that would be paid if the Company maintains its Bothell lease for the five-year term, starting February 2019. The Company had the right to terminate this lease after three years on January 31, 2022, by giving prior notice at least nine months before the early termination date and by paying a termination fee equal to the sum of unamortized leasing commissions and reimbursement for tenant improvements provided by the landlord amortized at 8.0% over the extended term.
On September 1, 2021, the Company entered into a three-year lease extension with a limited liability company controlled by Dr. Phillip Frost, a director and a principal stockholder of the Company (see Note 10 – Transactions with Related Parties). On an annualized basis, straight-line rent expense is approximately $62,000, including fixed and estimable fees and taxes.
For the nine months ended September 30, 2022 and 2021, operating lease expense, excluding short-term leases, finance leases and CAM charges, totaled approximately $175,000 and $172,000, respectively, of which $47,000 for each period was to a related party.
In November 2018, the Company entered into lease agreements to acquire lab equipment with 36 monthly payments of $1,000 payable through November 21, 2021. In April 2020, the Company entered into lease agreements to acquire lab equipment with 36 monthly payments of $2,000 payable through March 31, 2023. For finance leases, the weighted average discount rate is 8.0% and the weighted average remaining lease term is 0.5 years.
The following table summarizes the Company’s maturities of finance lease liabilities, by year and in aggregate, as of September 30, 2022 (in thousands):
Schedule of Maturities of Finance Lease Liabilities
The leased lab equipment is depreciable over five years and is presented net of accumulated depreciation on the condensed consolidated balance sheets under property and equipment. As of September 30, 2022, total right-of-use lab equipment net of depreciation recognized under finance leases is $40,000 and depreciation expense for the nine months ended September 30, 2022 was $12,000. As of December 31, 2021, total right-of-use assets lab equipment exchanged for finance lease liabilities was $194,000 and accumulated depreciation for lab equipment under finance leases was $143,000.
Phase 2a Clinical Trial
On August 3, 2022 the Company engaged hVIVO, a subsidiary of London-based Open Orphan plc (AIM: ORPH), a rapidly growing specialist contract research organization (CRO), to conduct a Phase 2a clinical trial with the Company’s novel, broad-spectrum, orally administered antiviral influenza candidate. The Company paid a reservation fee of $1.7 million upon execution of the agreement, and the total estimated cost of the agreement (including the reservation fee) is approximately $7.2 million.
From time to time, the Company is a party to, or otherwise involved in, legal proceedings arising in the normal course of business. As of the date of this report, except as described below, the Company is not aware of any proceedings, threatened or pending, against it which, if determined adversely, would have a material effect on its business, results of operations, cash flows or financial position.
Liberty Insurance Underwriters Inc. (“Liberty”) filed suit against us in federal court in Delaware seeking a declaratory judgment that there was no insurance coverage for any settlement, judgment, or defense costs in the class and derivative litigation, that the monies totaling approximately $1 million it paid to the Company in connection with an SEC investigation (which did not result in charges against us) were not covered by insurance, and for recoupment of the monies already paid. We answered the complaint denying its material allegations and asserted a counterclaim against Liberty for breach of contract, declaratory judgment, bad faith and violation of the Washington State Consumer Protection Act, alleging among other things that Liberty wrongfully denied the Company’s claims for coverage of the class and derivative litigations, and seeking money damages. In June 2022, the court granted Liberty’s motions for summary judgment to Liberty and awarded Liberty $1,359,063 in damages. In July 2022, we filed an appeal and deposited $1,600,000 with the United State District Court for the District of Delaware as security pending our appeal. During the period ended September 30, 2022, the Company recorded a legal judgment for this amount inclusive of estimated costs.
In November 2017, Lee Pederson, a former Biozone lawyer, filed a lawsuit in the U.S. District Court in Minnesota against co-defendants the Company, Dr. Phillip Frost, OPKO Health, Inc. and Brian Keller alleging that defendants engaged in wrongful conduct related to Biozone, including causing Biozone to enter into an allegedly improper licensing agreement and engaged in alleged market manipulation (“Pederson I”). On September 13, 2018, the United States District Court granted the Company and its co-defendants’ motion to dismiss Pederson’s amended complaint in Pederson I for lack of personal jurisdiction in Minnesota. On October 11, 2018, Pederson filed a notice of appeal with the United States Court of Appeals for the Eighth Circuit. The plaintiff’s appeal was denied and the dismissal of Pederson I affirmed in March 2020. Meanwhile, in July 2019, Lee Pederson had filed another lawsuit in the U.S. District Court in Minnesota against co-defendants the Company, Dr. Frost, and Daniel Fisher (“Pederson II”). In his complaint in Pederson II, Pederson alleged tortious interference by the Company and Dr. Frost with an alleged collaboration agreement between Mr. Pederson and Mr. Fisher. On November 19, 2020 the Magistrate Judge recommended dismissal of Pederson II, and further recommended that Pederson be restricted from filing any other actions in the District of Minnesota against defendants on the same or similar allegations as those in Pederson II, and on January 4, 2021 the District Court Judge adopted those recommendations and ordered dismissal of Pederson II. On February 1, 2021 Pederson filed a Notice of Appeal from the order of dismissal of Pederson II in the Eighth Circuit. On February 8, 2022 the U.S. Court of Appeals, Eighth Circuit, denied Pederson’s petition for rehearing en banc. On October 3, 2022, the U.S. Supreme Court denied Pederson’s petition for a writ of certiorari. We do not know if Pederson will refile the lawsuit elsewhere.
COVID-19 did not have a material adverse effect on our operations, although we experienced delays in our supply chain and with service partners as a result of the COVID-19 pandemic, including recent raw material and test animal shortages affecting our research and development efforts. In the future, COVID-19 may have unanticipated material adverse effects on us in a number of ways including:
No definition available.
The entire disclosure for commitments and contingencies.
Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef