COMMITMENTS AND CONTINGENCIES

9 Months Ended

Sep. 30, 2023

COMMITMENTS AND CONTINGENCIES

COMMITMENTS AND CONTINGENCIES

5. COMMITMENTS AND CONTINGENCIES

Operating Leases

The Company previously leased 5,104 square feet of space in Cambridge, Massachusetts, which was used primarily for corporate, manufacturing, and research and development functions (the “Cambridge Lease”). The Cambridge Lease commenced in June 2021, was amended in November 2021, and was scheduled to expire on December 31, 2024. In August 2023, the Company entered into a Lease Termination and Settlement Agreement with respect to the Cambridge Lease (the “Cambridge Lease Termination Agreement”), pursuant to which the Cambridge Lease was terminated effective as of September 1, 2023. All activities taking place within the premises subject to the Cambridge Lease ceased as of September 1, 2023. Pursuant to the Cambridge Lease Termination Agreement, the Company paid a lease termination fee of $579 thousand and authorized the landlord to draw down and retain the full amount of the $100 thousand letter of credit entered into in connection with the Cambridge Lease. In addition, the Company eliminated the remaining lease liability, net of the remaining right of use asset following termination of the Cambridge Lease resulting in $114 thousand offset to the $679 thousand in termination payments which resulted in a total loss of $565 thousand. The loss on lease termination is included in general and administrative expenses for the nine months ended September 30, 2023. Under the Cambridge Lease, the Company was required to pay its proportionate share of certain operating costs and property taxes applicable to the leased premises in excess of new base year amounts. These costs were considered to be variable lease payments and were not included in the determination of the lease’s right-of-use asset or lease liability.

The Company had identified and assessed the following significant assumptions in recognizing its right-of-use assets and corresponding lease liabilities:

● As the Cambridge Lease did not provide an implicit rate, the Company had estimated the incremental borrowing rate in calculating the present value of the lease payments.

● Since the Company had elected to account for each lease component and its associated non-lease components as a single combined component, all contract consideration had been allocated to the combined lease component.

● The expected lease terms included noncancelable lease periods.

The elements of lease expense are as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
Lease cost (In thousands)	2023		2022		2023		2022
Operating lease cost	$	75	$	113	$	301	$	339
Short-term lease cost		1		2		11		3
Variable lease cost		29		35		118		133
Total lease cost	$	105	$	150	$	430	$	475
Other information (In thousands)
Gain on lease termination	$	(114)	$	—	$	(114)	$	—
Lease termination costs		679		—		679		—
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from short term leases	$	1	$	2	$	11	$	3
Operating cash flows from operating leases		73		106		291		300
Total cash paid for leases	$	74	$	108	$	302	$	303
Weighted-average remaining lease term - operating leases		—		2.25 Years		—		2.25 Years
Weighted-average discount rate - operating leases		—		6.0%		—		6.0%

As of September 30, 2023, there are no payments due under the Cambridge Lease. As of December 31, 2022, right-of-use lease assets and lease liabilities are reported in the Company’s consolidated balance sheets as follows:

Leases (In thousands)	Classification	December 31,  2022
Assets
Lease asset, net	Operating	$	844
Total lease assets		$	844
Liabilities
Current	Operating	$	396
Non-current	Operating		553
Total lease liabilities		$	949

The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value of such assets (or asset groups) may not be fully recoverable. The asset (or asset group) to be held and used that is subject to impairment review represents the lowest level of identifiable cash flows that are largely independent of other groups of assets and liabilities. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to undiscounted future cash flows expected to be generated by the asset. If such assets are considered unrecoverable, the impairment loss to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Factors the Company considers that could indicate an impairment may exist include, but are not limited to, the following: significant changes in the manner of our use of the assets or the strategy for the Company’s overall business, significant underperformance relative to expected historical or projected development milestones, significant negative regulatory or economic trends, significant technological changes which could render the assets in development obsolete. Fair value is determined through various valuation techniques, including discounted cash flow models, quoted market values, and third-party independent appraisals, as considered necessary. When recognized, impairment losses related to long-lived assets to be held and used in operations are recorded in operating expenses in the consolidated statements of operations.

In March 2023, the Company announced that its INSPIRE 2.0 Study for the Neuro-Spinal Scaffold had failed to meet its primary endpoint and the Company deemed this to be an event to test for impairment, pertaining to the Company’s single asset group. The Company performed an impairment analysis during the quarter ended June 30, 2023, and concluded that none of its long-lived assets were impaired.

Clinical Trial Commitments

The Company had engaged and executed contracts with contract research organizations (“CROs”) to assist with the administration of its INSPIRE 1.0 and INSPIRE 2.0 clinical trials. As of September 30, 2023, approximately $2.9 million is expected to be paid on these contracts.