COMMITMENTS AND CONTINGENCIES |
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COMMITMENTS AND CONTINGENCIES | 9.COMMITMENTS AND CONTINGENCIES Leases On July 2, 2024, the Company entered into a new operating lease (the “Woburn Lease”) of office space in Woburn, Massachusetts (the “Woburn Premises”) for a term of The Company has a one-time option to extend the term of the Woburn Lease for one additional term of five years, provided that the Company is not in arrears in any payment of rent, the payment of any outstanding invoice, or otherwise in default. On June 28, 2024, the Company exercised a termination option included in the lease agreement of its former office space in Lexington, Massachusetts, and terminated the lease effective August 31, 2024. and two months, commencing on September 1, 2024, and terminating on October 30, 2029.Right-of-use assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. ASC 842 requires a lessee to discount its unpaid lease payments using the interest rate implicit in the lease or, if that rate cannot be readily determined, its incremental borrowing rate. The Company used the interest rate of 8% stated in the lease agreement to discount its real estate lease liabilities. There are no material residual guarantees associated with any of the Company’s leases, and there are no significant restrictions or covenants included in the Company’s lease agreements. There was no sublease rental income for the three and nine months ended September 30, 2024, and the Company is not the lessor in any lease arrangement, and there were no related-party lease agreements. Lease Costs The table below presents certain information related to the lease costs for the Company’s operating lease for the nine months ended September 30, 2024:
Lease Position as of September 30, 2024 Right-of-use lease assets and lease liabilities for the Company’s operating lease as of September 30, 2024 were recorded in the balance sheet as follows:
Lease Terms and Discount Rate The table below presents certain information related to the weighted average remaining lease term and the weighted average discount rate for the Company’s operating lease as of September 30, 2024:
Undiscounted Cash Flows Future lease payments included in the measurement of lease liabilities on the balance sheet are as follows:
Rent expense for the three months ended September 30, 2024 and 2023 amounted to $28,467 and $41,078, respectively. Rent expense for the nine months ended September 30, 2024 and 2023 amounted to $120,099 and $125,735, respectively. Cash Flows Supplemental cash flow information related to the operating lease for the nine months ended September 30, 2024 was as follows:
Sales Tax Payable The majority of the Company’s customers are researchers, universities, hospitals, and not-for-profit entities that were believed by the Company to have a sales and use tax exemption that generally excludes them from paying sales taxes. The main types of specimens the Company sells are blood, blood plasma, human tissue, human parts, and human bodily fluids and only a few of these products are typically not taxable in some states regardless of the buyer’s tax exemption status. The Company historically has not collected sales tax in states where it had sales. Had the Company contemporaneously collected and remitted sales tax for all customers and in all jurisdictions where it would have been required, there would have been no material impact on the Company’s unaudited condensed financial statements. As a result of an entity-wide risk assessment process that commenced in the second quarter of 2023, the Company engaged external tax consultant advisors to complement internal resources and efforts to provide support in assessing the appropriate sales tax treatment associated with the Company’s products for all prior years in which the Company had generated revenue, to assist with the facilitation and tracking of Voluntary Disclosure Agreements (“VDAs”) in jurisdictions where a potential tax liability may exist and to assist with the implementation of a sales tax software platform solution for the calculation, communication, collection, and remittance of sales tax for all non-exempt future sales. From the Company’s inception through the filing date of this Quarterly Report, the Company now believes that an obligation to collect and remit sales tax existed for certain of its sales of products to certain of its customers. The Company has analyzed its product sales, on an invoice-by-invoice and customer-by-customer basis, to determine which products are subject to sales tax in each jurisdiction, and determining which of its customers are exempt from sales tax, and which customers who were not exempt from sales tax have already paid compensating use tax to the appropriate jurisdiction. Part of this process includes requesting and obtaining exemption letters or representations from its customers or proof of payment of their compensating use tax. As the Company continues to make progress on this project, certain customers have notified the Company that they are not exempt from the payment of sales tax and have not remitted use tax and the Company has started to invoice such customers for past sales tax due. As of December 31, 2023, the Company had established and accrued a reliable point estimate with a maximum potential of the sales tax liability of approximately $707,000 and the related interests and penalties of approximately $215,000 in accrued expenses on the balance sheet. The estimated liability represents the estimated tax liability for sales made to customers who have notified the Company that they are not exempt from sales taxes and customers who have not responded to Company’s request to provide a sales exemption letter. As of December 31, 2023, the Company had also recovered approximately $359,000 of prior taxes from certain customers who do not have a sales tax exemption. During the year ended December 31, 2023, the Company recognized a loss of approximately $564,000 in its statement of operations and comprehensive loss related to the sales tax liability. The Company continued to pursue nonresponsive customers with the expectation that over time, further exemption letters or representations will be received that will reduce the liability. In the nine months ended September 30, 2024, the Company received additional sales tax exemption letters or representations from customers. In addition to this, the Company received confirmation from certain tax jurisdictions in which it had previously accrued a potential tax liability that its specimens are exempt from tax in those jurisdictions, therefore, the Company reversed the accrued liability associated with those jurisdictions. The Company also registered in certain states and commenced the filing and remittance of sales taxes. These factors contributed to the reduction of the sales tax liability to approximately $407,000 and the related interests and penalties to approximately $144,000 as of September 30, 2024. As of September 30, 2024, the Company had recovered approximately $491,000 of prior taxes from certain customers who do not have a sales tax exemption. The Company did recognize any additional loss in its statement of operations and comprehensive loss related to the sales tax liability during the nine months ended September 30, 2024. The Company commenced VDA filings with certain tax jurisdictions in the third quarter of 2024, during which it started remitting its sales tax obligations.Legal Proceedings From time to time the Company is involved in litigation, claims, and other proceedings arising in the ordinary course of business. Such litigation and other proceedings may include, but are not limited to, actions relating to employment law and misclassification, intellectual property, commercial or contractual claims, or other consumer protection statutes. Litigation and other disputes are inherently unpredictable and subject to substantial uncertainties and unfavorable resolutions could occur. As of September 30, 2024, there was a legal dispute filed against the Company. Resignation of Chief Information Officer and Filing of Demand for Arbitration On July 25, 2024, Benjamin Bielak, the Company’s Chief Information Officer, until his resignation on July 14, 2024, initiated a Demand for Arbitration against the Company with the American Arbitration Association, pursuant to the dispute resolution provisions contained in Mr. Bielak’s employment agreement. The terms and conditions of Mr. Bielak’s employment with the Company were governed by his employment agreement. In his Demand for Arbitration Mr. Bielak claims that the Company failed to provide him with certain bonus payments allegedly due to him for work performed in 2023 and 2024. Mr. Bielak also claims that the Company failed to provide him with severance payments allegedly due pursuant to the provisions of his employment agreement. The total amount of Mr. Bielak’s claim for alleged damages is $586,800 plus attorneys’ fees and interest. The Company believes that Mr. Bielak’s claims are without legal or factual basis, and intends to vigorously defend these claims. An arbitrator has been selected, however, a schedule for the arbitration is yet to be set as of November 7, 2024. |