COMMITMENTS AND CONTINGENCIES

9 Months Ended

Sep. 30, 2022

COMMITMENTS AND CONTINGENCIES

COMMITMENTS AND CONTINGENCIES

7.            COMMITMENTS AND CONTINGENCIES

Short-Term Operating Leases

Capricor leases office space in Beverly Hills, California from The Bubble Real Estate Company, LLC ("Bubble Real Estate") pursuant to a lease beginning in 2013. Capricor subsequently entered into several amendments modifying certain terms of the lease. Effective January 1, 2021, we entered into a month-to-month lease amendment with the Bubble Real Estate. The monthly lease payment was $13,073. In November 2021, Capricor entered into an amendment to the lease pursuant to which the square footage of the premises was reduced with a monthly lease payment of $5,548 per month commencing November 1, 2021. In July 2022, Capricor added additional office space increasing the monthly lease payment to $7,869 per month. The lease is terminable by either party upon 90 days’ written notice to the other party.

Expenses incurred under short-term operating leases for the three months ended September 30, 2022 and 2021 were $23,340 and $39,219, respectively. Expenses incurred under short-term operating leases for the nine months ended September 30, 2022 and 2021 were $58,128 and $117,657, respectively.

Long-Term Operating Leases

Capricor leases facilities in Los Angeles, California from Cedars-Sinai Medical Center (“CSMC”), a related party (see Note 9 – “Related Party Transactions”), pursuant to a lease (the “Facilities Lease”) beginning in 2014. Capricor has subsequently entered into several amendments modifying certain terms of the lease. In July 2020, Capricor exercised its option to extend the term of the Facilities Lease for an additional 12-month period through July 31, 2021 with a monthly lease payment of $15,805. In July 2021, Capricor exercised its option to extend the term of the Facilities Lease for an additional 12-month period through July 31, 2022 with a monthly lease payment of $10,707. In July 2022, we entered into an amendment for an additional 24-month period extending the term through July 31, 2024 with a monthly lease payment of $10,707.

The Company entered into a lease agreement commencing October 1, 2021 with Altman Investment Co, LLC (“Altman”) for 9,396 square feet of office and laboratory space located at 10865 Road to the Cure, Suite 150, in San Diego, California. Under the terms of the lease, the base rent will be $48,859 per month, for which the Company received certain rent abatements during the initial year. Additionally, the rent is subject to a 3.0% annual rent increase during the initial lease term of five years, plus certain operating expenses and taxes. The lease contains an option for Capricor to renew for an additional term of five years. Effective July 1, 2022 the Company entered into an amendment to the lease increasing the square footage to 9,485 square feet with a monthly lease payment of $49,322 per month. In November 2022, we entered into an amendment increasing the square footage to 9,605 square feet with a new monthly lease payment of $51,444 per month effective December 1, 2022.

Effective November 1, 2021, the Company entered into a vivarium agreement with Explora BioLabs, Inc. (“Explora”), a Charles River Company, for vivarium space and services. Under the terms of the agreement, the base rent will be $4,021 per month for an exclusive large vivarium room located in San Diego, California. The lease term is for one-year and will automatically renew for additional successive one-year renewal terms unless either party provides the other party with 60-day written notice prior to the end of the then-current term. For ASC 842 purposes, we applied a lease term of five years.

The long-term real estate operating leases are included in “lease right-of-use assets, net” on the Company’s condensed consolidated balance sheet and represent the Company’s right-to-use the underlying assets for the lease term. The Company’s obligation to make lease payments are included in “lease liabilities, current” and “lease liabilities, net of current” on the Company’s condensed consolidated balance sheet.

The table below excludes short-term operating leases. The following table summarizes maturities of lease liabilities and the reconciliation of lease liabilities as of September 30, 2022:

2022 (remainder of the year)	$	196,588
2023		790,922
2024		755,815
2025		699,848
2026		539,821
Total minimum lease payments		2,982,994
Less: imputed interest		(202,584)
Total operating lease liabilities	$	2,780,410
Included in the condensed consolidated balance sheet:
Current portion of lease liabilities	$	697,561
Lease liabilities, net of current		2,082,849
Total operating lease liabilities	$	2,780,410
Other Information:
Weighted average remaining lease term		3.83 years
Weighted average discount rate		3.61%

As of September 30, 2022, ROU assets for operating leases were approximately $2.6 million and operating lease liability were approximately $2.8 million. The following table contains a summary of the lease costs recognized and lease payments pertaining to the Company’s operating leases under ASC 842 for the period indicated:

	Three months ended September 30,				Nine months ended September 30,
	2022		2021		2022		2021
Lease costs, unrelated parties	$	157,924	$	—	$	474,092	$	—
Lease costs, related parties		32,120		37,218		96,359		132,048
Lease payments, unrelated parties		135,137		—		305,840		—
Lease payments, related parties		32,120		37,218		96,359		132,048

Legal Contingencies

The Company is not a party to any material legal proceedings at this time. From time to time, the Company may become involved in various legal proceedings that arise in the ordinary course of its business or otherwise.

Accounts Payable

During the normal course of business, disputes with vendors may arise. If a vendor disputed payment is probable and able to be estimated, we will record an estimated liability.

Other Funding Commitments

The Company is a party to various agreements, principally relating to licensed technology, that require future payments relating to milestones that may be met in subsequent periods or royalties on future sales of specific products (see Note 8 – “License and Distribution Agreements”).

Additionally, the Company is a party to various agreements with contract research and/or manufacturing organizations that generally provide for termination upon notice, with the exact amounts owed in the event of termination to be based on the timing of termination and the terms of the agreement.

Employee Severances

The Board of Directors approved severance packages for specific full-time employees based on their length of service and position ranging up to six months of their base salaries, in the event of termination of their employment, subject to certain conditions. No liability under these severance packages has been recorded as of September 30, 2022.