COMMITMENTS AND CONTINGENCIES

3 Months Ended

Dec. 31, 2020

COMMITMENTS AND CONTINGENCIES

F. COMMITMENTS AND CONTINGENCIES

F. COMMITMENTS AND CONTINGENCIES

Clinical Research Agreements 

Under co-development and revenue sharing agreements with Ergomed, Ergomed agreed to contribute up to $12 million towards the Company’s Phase 3 Clinical Trial in the form of discounted clinical services in exchange for a single digit percentage of milestone and royalty payments, up to a specific maximum amount. The Company accounted for the co-development and revenue sharing agreements in accordance with ASC 808 “Collaborative Arrangements”. The Company determined the payments to Ergomed are within the scope of ASC 730 “Research and Development.” Therefore, the Company records the discount on the clinical services as a credit to research and development expense on its Statements of Operations. Since the inception of the agreement with Ergomed, the Company has incurred research and development expenses of approximately $34.0 million for Ergomed’s services. This amount is net of Ergomed’s discount of approximately $11.3 million. During the three months ended December 31, 2020 and 2019, the Company recorded, net of Ergomed’s discount, approximately $0.6 million and $0.9 million, respectively, as research and development expense related to Ergomed’s services.

Lease Agreements

The Company leases a manufacturing facility near Baltimore, Maryland (the San Tomas lease). The building was remodeled in accordance with the Company’s specifications so that it can be used by the Company to manufacture Multikine for the Company’s Phase 3 clinical trial and sales of the drug if approved by the FDA. The lease is for a term of twenty years and requires annual base rent to escalate each year at 3%. The Company is required to pay all real estate and personal property taxes, insurance premiums, maintenance expenses, repair costs and utilities. The lease allows the Company, at its election, to extend the lease for two ten-year periods or to purchase the building at the end of the 20-year lease, which expires in October 2028.

On December 31, 2020 and September 30, 2020, the net book value of the finance lease right of use asset is approximately $13.4 million and $13.8 million, respectively and the balance of the finance lease liability is approximately $12.5 million and $12.7 million, respectively, of which approximately $1.0 million and $0.9 million, respectively, is current.  These amounts include the San Tomas lease as well as several other smaller finance leases for office equipment.  The finance right of use assets are being depreciated using a straight-line method over the underlying lease terms.  Total cash paid related to finance leases during the each of the three months ended December 31, 2020 and 2019 was approximately $0.5 million, of which approximately $0.3 million was for interest. The weighted average discount rate of the Company’s finance leases is 8.8% and the weighted average time to maturity is 7.8 years.

In August 2020, the Company entered into an amendment to the San Tomas lease agreement under which the landlord agreed to allow the Company to substantially upgrade the manufacturing facility in preparation for the potential commercial production of Multikine.  The estimated cost of the upgrades is $10.5 million, of which approximately $6.7 million has been incurred to date.  Pursuant to the amendment, the landlord agreed to finance the final $2.4 million of the costs incurred, i.e., after the Company has financed the initial $8.1 million.  Per the terms of the financing, upon completion of the project, the $2.4 million will be repaid through increased lease payments over the remaining lease term.

The Company was required to deposit the equivalent of one year of base rent in accordance with the lease. When the Company meets the minimum cash balance required by the lease, the deposit will be returned to the Company. The approximate $1.7 million deposit is included in non-current assets at December 31, 2020 and September 30, 2020.

Approximate future minimum lease payments under finance leases as of December 31, 2020 are as follows:

Nine months ending September 30, 2021	$	1,469,000
Year ending September 30,
2022		2,014,000
2023		2,083,000
2024		2,148,000
2025		2,218,000
2026		2,294,000
Thereafter		5,028,000
Total future minimum lease obligation		17,254,000
Less imputed interest on finance lease obligations		(4,789,000	)
Net present value of lease finance lease obligations	$	12,465,000

Effective April 30, 2020, the Company terminated a month-to-month arrangement with a sub-lessee as the sub-leased space is needed to prepare the facility to produce Multikine for commercial purposes and before the Company’s Biologics License Application (BLA) can be submitted to the FDA. The sublease rental income for the three months ended December 31, 2019 was approximately $18,000.

The Company leases two facilities under 60-month operating leases - the lease for its research and development laboratory expires February 28, 2022 and the lease for its office headquarters was renewed on July 1, 2020 and expires on November 30, 2025.The operating leases include escalating rental payments. The Company is recognizing the related rent expense on a straight-line basis over the full 60-month terms of the leases. As of December 31, 2020 and September 30, 2020, the net book value of the operating lease right of use assets is approximately $1.2 million. As of December 31, 2020 and September 30, 2020, the balance of the operating lease liabilities is approximately $1.2 million and $1.3 million, respectively, of which approximately $0.2 million and $0.1 million, respectively, is current.  The Company incurred lease expense for operating leases of approximately $66,000 and $68,000, respectively, for the three months ended December 31, 2020 and 2019. Total cash paid related to operating leases during the three months ended December 31, 2020 and 2019 was approximately $48,000 and $66,000, respectively.

As of December 31, 2020, future minimum lease payments on operating leases are as follows:

Nine months ending September 30, 2021	$	193,000
Year ending September 30,
2022		264,000
2022		272,000
2024		280,000
2025		288,000
2026		207,000
Thereafter		80,000
Total future minimum lease obligation		1,584,000
Less imputed interest on operating lease obligation		(354,000	)
Net present value of operating lease obligation	$	1,230,000