Commitments and Contingencies
|3 Months Ended|
Mar. 31, 2023
|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 7.1% 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 March 31, 2023 (in thousands):
Schedule of Maturities of Operating Lease Liabilities
As of March 31, 2023, the total operating lease liability of $234,000 is classified as $208,000 current operating lease liabilities and $27,000 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 three months ended March 31, 2023 and 2022, approximately $22,000 and $19,000 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 three 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 three months ended March 31, 2023 and 2022, operating lease expense, excluding short-term leases, finance leases and CAM charges, totaled approximately $58,000 and $58,000, respectively, of which $16,000 for each period was to a related party.
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. The final payment under the lease agreement was made in March 2023. The Company is in contact with the lessor to transfer title of the equipment to the Company.
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 March 31, 2023, total right-of-use lab equipment net of depreciation recognized under finance leases is $77,000 and depreciation expense for the three months ended March 31, 2023 was $45,000. As of December 31, 2022, 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 $158,000.
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, which is scheduled to begin in 2023 and has been included in prepaid and other expenses as of March 31, 2023 and December 31, 2022. 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 the SEC investigation were not covered by insurance, and for recoupment of the monies already paid. We retained counsel to defend us which has filed an answer to the complaint denying its material allegations, as well as 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. On June 7, 2022, the court filed a Stipulation and Order for Entry of Judgment in the amount of $1,359,063.72 in favor of Liberty (the “Judgment”) following summary judgment granted by the court to Liberty on all but one of the matters at issue in the case. The Company filed an appeal in July 2022. Pending the outcome of the appeal, the Company paid $1.6 million into the registry of the court which stayed execution of the Judgment. The United States Court of Appeals for the Third Circuit (the “Third Circuit Court”) held oral argument on the appeal on March 8, 2023. On March 29, 2023, the Third Circuit ruled in favor of the Company on the appeal, thereby vacating the trial court’s prior grant of summary judgment in favor of Liberty. As a result of this ruling, the case will be remanded to the District Court for trial on the merits of the Company’s coverage claims for defense costs. The Company intends to file a motion with the District Court to seek the return of the $1.6 million which the Company paid to the District Court to stay the judgment. The Company is evaluating all options.
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:
The entire disclosure for commitments and contingencies.
Reference 1: http://www.xbrl.org/2003/role/disclosureRef