Commitments and Contingencies

9 Months Ended

Sep. 30, 2021

Commitments and Contingencies [Abstract]

COMMITMENTS AND CONTINGENCIES

NOTE 7 – COMMITMENTS AND CONTINGENCIES

Operating Leases

In May 2016, the company moved and entered into a month-to-month lease agreement to lease office space in Tucson, Arizona. In May 2019, the company acquired Applied Optical Sciences and assumed the month-to-month lease for office and laboratory space also in Tucson, Arizona.

Rent expense was approximately $145,000 and $35,000 for the nine months ended September 30, 2021 and 2020, respectively, and $52,000 and $11,000, for the three months ended September 30, 2021 and 2020, respectively.

In March 2021, the company signed a five-year lease for a 13,000 square foot laboratory/office space in Tucson. The lease term commenced May 1, 2021 and ends on April 30, 2026. The base rent is $6.7626 per rentable square foot for year one, and escalates to $9.2009 in year two, $11.4806 in year three, $13.1740 in year four and $14.9306 in year five, plus certain operating expenses and taxes.

At September 30, 2021, we had $704,960 in future minimum lease payments, with $103,992, due within one year.

The company determines if a contract contains a lease at inception. GAAP requires that the company’s leases be evaluated and classified as operating or finance leases for financial reporting purposes. The classification evaluation begins at the commencement date and the lease term used in the evaluation includes the non-cancellable period for which the company has the right to use the underlying asset, together with renewal option periods when the exercise of the renewal option is reasonably certain and failure to exercise such option which result in an economic penalty. The company has considered renewal options at the end of its active leases and has determined at this time the company is not reasonably certain to renew the operating leases discussed below. All of the company’s leases are classified as operating leases.

The assets and liabilities from operating leases are recognized based on the present value of remaining lease payments over the lease term using the company’s incremental borrowing rates or implicit rates, when readily determinable.

The company’s leases do not provide an implicit rate that can be readily determined. Therefore, the company uses a discount rate based on the incremental borrowing rate of its current external debt of 6.5%.

The company’s weighted-average remaining lease term relating to its operating leases is 4.58 years, with a weighted-average discount rate of the 6.5%.

The company incurred lease expense for its operating leases of $24,754 which was included in general and administrative expenses in the statements of operation for the periods ended September 30, 2021. During the nine months ended September 30, 2021, the company made cash lease payments in the amount of $37,671.

The following table presents information about the future maturity of the lease liability under the company’s operating leases as of September 30, 2021:

Maturity of Lease Liability	Building
2021	$	22,602
2022		112,141
2023		143,325
2024		168,577
2025		191,779
Thereafter		66,536
Total undiscounted lease payments	$	704,960
Less imputed interest		(108,564	)
Present Value of Lease Liabilities	$	596,396
Remaining lease term		4.58

The following table presents lease assets and liabilities and their balance sheet classification:

Classification	September 30, 2021
Right-of-use Assets	$	572,180
Current portion of operating lease obligations		66,940
Operating lease obligations, less current portion		529,456

Guarantees

The company agrees to indemnify its officers and directors for certain events or occurrences arising as a result of the officers or directors serving in such capacity. The maximum amount of future payments that the company could be required to make under these indemnification agreements is unlimited. However, the company maintains a director’s and officer’s liability insurance policy that limits its exposure and enables it to recover a portion of any future amounts paid. As a result, it believes the estimated fair value of these indemnification agreements is minimal because of its insurance coverage, and it has not recognized any liabilities for these agreements as of September 30, 2021 and 2020.

Litigation

On July 3, 2019, Gusrae, Kaplan & Nusbaum and its partner, Ryan Whalen filed a complaint in the United States District Court for the Southern District of New York against the company, its directors, officers, attorneys and a consultant. The action alleged libel, securities fraud and related claims. The company filed a motion to dismiss the complaint on October 24, 2019. On December 13, 2019, Gusrae Kaplan and Mr. Whalen filed an opposition to the company’s motion. On January 10, 2020, the company filed a reply brief. The United States District Court has not ruled on the motion. On August 5, 2021, the plaintiffs filed a Notice of Voluntary Dismissal of the action. The dismissal was “without prejudice,” which means the plaintiffs may refile claims that are not barred by the statute of limitations.

On January 15, 2021, the company filed a complaint in the United States District Court, Southern District of New York, against Gusrae, Kaplan & Nusbaum and Ryan Whalen for malpractice and breach of New York Rules of Professional Conduct by both parties as former counsel to the company. On May 28, 2021, Gusrae, Kaplan & Nusbaum and Mr. Whalen filed a motion to dismiss the complaint. On June 25, 2021, the company filed an opposition to the motion. On July 13, 2021, Gusrae Kaplan & Nusbaum and Mr. Whalen filed their reply brief. The United States District Court has not yet ruled on the motion.

On September 7, 2021, Gusrae Kaplan & Nusbaum and Ryan Whalen filed a complaint in the New York Supreme Court against the company, its directors, officers, attorneys and a consultant, alleging a single claim for defamation per se based on the same conduct underlying their claim of libel in their voluntarily dismissed federal court action.  The company filed a motion to dismiss the complaint on October 29, 2021, which motion included a request for sanctions for filing a frivolous complaint.  Gusrae Kaplan & Nusbaum and Mr. Whalen’s deadline to oppose the company’s motion to dismiss is currently November 16, 2021.

As with any litigation, the company cannot predict the outcome with certainty, but the company expects to provide further updates on the status of the litigation as circumstances warrant.

The company may, from time to time, be involved in legal proceedings arising from the normal course of business.