COMMITMENTS AND CONTINGENCIES

3 Months Ended

Dec. 31, 2023

COMMITMENTS AND CONTINGENCIES

COMMITMENTS AND CONTINGENCIES

E. COMMITMENTS AND CONTINGENCIES

Clinical Research Agreement 

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 $35.8 million for Ergomed’s services. This amount is net of Ergomed’s discount of approximately $11.9 million. During the three months ended December 31, 2023 and 2022, the Company recorded, net of Ergomed’s discount, approximately $0.1 million for each quarter 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 any regulatory agency. 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. The renewal options are not included in the calculation of the right of use asset and lease liability because exercise of those options is not reasonably certain.

The San Tomas lease is classified as a finance lease on the Company’s balance sheet, as well as several other smaller finance leases for office equipment. The finance right of use assets are being depreciated using the straight-line method over the underlying lease terms. Total cash paid related to finance leases during the three months ended December 31, 2023 and 2022 was approximately $0.7 million, of which approximately $0.2 and $0.3 million was for interest, respectively. As of December 31, 2023, the weighted average discount rate of the Company’s finance leases is 8.44% and the weighted average time to maturity is 4.83 years.

On January 11, 2023, the Company was required to deposit approximately $2.3 million to its landlord, equivalent to one year’s rent, for falling below the stipulated cash threshold in accordance with the San Tomas lease. The amount will be included as an asset on the balance sheet until the Company meets the minimum cash balance required and the deposit is returned.

Approximate future minimum lease payments under finance leases as of December 31, 2023 are as follows:

Nine months ending September 30, 2024	$	1,995,000
Year ending September 30,
2025		2,741,000
2026		2,832,000
2027		2,923,000
2028		3,015,000
2029		252,000
Thereafter		-
Total future minimum lease obligation		13,758,000
Less imputed interest on finance lease obligations		(2,463,000	)
Net present value of financing lease obligations		11,295,000
Less net present value of financing lease obligations – current portion		(1,827,000	)
Net present value of financing lease obligations - non-current portion	$	9,468,000

The Company leases two facilities under operating leases. The lease for the Company’s office headquarters will expire on November 30, 2025. The lease for its research and development laboratory was renewed in September 2021 for an additional ten years and will expire on February 29, 2032. The renewal was considered a modification for accounting purposes and the right of use asset and liability were remeasured as of the date of the renewal. The operating leases include escalating rental payments. The Company is recognizing the related rent expense on a straight-line basis over the terms of the leases. The Company incurred lease expense for operating leases of approximately $0.1 for both the three months ended December 31, 2023 and 2022. Total cash paid related to operating leases during the three months ended December 31, 2023 and 2022 was approximately $0.1 million for each quarter. The weighted average discount rate of the Company’s operating leases is 10.19% and the weighted average time to maturity is 7.74 years.

As of December 31, 2023, future minimum lease payments on operating leases are as follows:

Nine months ending September 30, 2024	$	268,000
Year ending September 30,
2025		366,000
2026		287,000
2027		277,000
2028		285,000
2029		294,000
Thereafter		746,000
Total future minimum lease obligation		2,523,000
Less imputed interest on operating lease obligation		(720,000	)
Net present value of operating lease obligations		1,803,000
Less net present value of operating lease obligations - current portion		(204,000	)
Net present value of operating lease obligations - non-current portion	$	1,599,000