COMMITMENTS AND CONTINGENCIES |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2020 | |||||||||||||||||||||||||||||||||||||||||||||
Commitments and Contingencies Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||
COMMITMENTS AND CONTINGENCIES | COMMITMENTS AND CONTINGENCIES Clinical Trial Agreement From time to time, the Company enters into agreements with contract research organizations and other service providers. In August 2018, the Company entered into such an agreement for its planned Phase 3 trial for the treatment of celiac disease. Under this agreement, the Company expects to pay approximately $1.1 million for data management over the course of the Phase 3 celiac disease trial for data management and biostatistics services. Employment Agreements The Company has entered into executive employment agreements with the executives (the “Executive Employment Agreements”). The Executive Employment Agreements provide an annual base salary and the opportunity to participate in the Company’s equity compensation, employee benefit and bonus plans once they are established and approved by the Board. The Executive Employment Agreements contain severance provisions if the executives are terminated under certain conditions that would provide the executive with 12 months of their base salary and up to 12 months of continuation of health insurance benefits. Effective upon the consummation of the RDD Merger, the Company entered into an employment agreement with Mr. Temperato for him to serve as the Company’s Chief Executive Officer (the “Employment Agreement”). Pursuant to the Employment Agreement, Mr. Temperato began full-time employment with the Company upon the effective time of the RDD Merger on April 30, 2020, at an initial base salary of $450,000 per year, subject to review and adjustment by the Board from time to time. The Board approved an option grant to Mr. Temperato to purchase 1,000,000 shares of Common Stock, which vested 25% upon grant, with the remainder vesting in 48 equal month installments, provided that Mr. Temperato remains an employee of the Company as of each such vesting date. Mr. Temperato will be eligible to receive a discretionary annual bonus with a target amount of 40% of his base salary, as determined by the Board in its sole discretion (and pro-rated for 2020). Mr. Temperato is also eligible to participate in the Company’s other employee benefit plans in effect from time to time on the same basis as are generally made available to other senior executive employees of the Company. If the employment of Mr. Temperato is terminated by the Company without “Cause” or by Mr. Temperato for “Good Reason” (each as defined in the Employment Agreement), in each case subject to Mr. Temperato entering into and not revoking a separation agreement, Mr. Temperato will be eligible to receive 12 months of his then-current base salary, the prorated amount of his target year-end bonus, and accelerated vesting of his unvested options and restricted stock unit awards that were scheduled to vest in the 12 months following termination. Periodically, the Company enters into separation and general release agreements with former executives of the Company that include separation benefits consistent with the former executives’ employment agreements. The Company recognized severance expense totaling $0.8 million during the nine months ended September 30, 2020 and $0.3 million during the nine months ended September 30, 2019, which is paid in equal installments over 12 months from the date of separation. There was no severance expense recognized during the three months ended September 30, 2020 and 2019. The accrued severance obligation in respect of the former executives was approximately $0.4 million as of September 30, 2020. Office Lease In October 2017, the Company entered into a three-year lease for office space that expired on September 30, 2020. Base annual rent was $60,000, or $5,000 per month. Monthly payments of $5,000 were due and payable over the 24-month term. A security deposit of $5,000 was paid in October 2017. The lease contained a two-year renewal option. In July 2020, the Company entered into a 4-year lease for the same office space with additional square footage that expires on September 30, 2024. Base annual rent is $72,000, or $6,000 per month. Monthly payments of $6,000 are due and payable over the 4-year term. The lease contains a 3-year renewal option. The Company recorded a right of use asset of $233,206 and an operating lease liability of $233,206 at the inception of the lease in July 2020. The Company estimated the present value of the lease payments over the remaining term of the leases using a discount rate of 12%, which represented the Company’s estimated incremental borrowing rate. The renewal options were excluded from the lease payments as the Company concluded the exercise of the option was not considered reasonably certain. Operating lease cost under ASC 842 was approximately $17,880 and $47,880 for the three and nine months ended September 30, 2020, respectively, and $15,000 and $45,000 for the three and nine months ended September 30, 2019, respectively. Operating lease cost is included in general and administrative expenses on the accompanying condensed consolidated statement of operations and comprehensive loss. The total cash paid for amounts included in the measurement of the operating lease liability and reported within operating activities was less than $0.1 million during the nine months ended September 30, 2020. Future minimum payments under the Company’s lease liability were as follows:
Legal On April 8, 2020, the Company received a summons and complaint that was filed in the Mecklenburg County Superior Court of North Carolina, regarding a vendor that alleges the Company owes approximately $1.7 million for services rendered prior to February 2019. The Company strongly denies any wrongdoing and firmly believes the allegations in the complaint are entirely without merit and intends to defend against them vigorously. The Company filed an answer denying the allegations set forth in the complaint. A mediation is scheduled for November 20, 2020 wherein the parties will attempt to resolve the case. If the case is not resolved at mediation, the trial date is set for February 1, 2021. From time to time, the Company could become involved in other disputes and various litigation matters that arise in the normal course of business. These may include disputes and lawsuits related to intellectual property, licensing, contract law and employee relations matters. Periodically, the Company reviews the status of significant matters, if any exist, and assesses its potential financial exposure. If the potential loss from any claim or legal claim is considered probable and the amount can be estimated, the Company accrues a liability for the estimated loss. Legal proceedings are subject to uncertainties, and the outcomes are difficult to predict; therefore, accruals are based on the best information available at the time. As additional information becomes available, the Company reassesses the potential liability related to pending claims and litigation. As of September 30, 2020, the Company has accrued approximately $0.6 million for the potential liability. |