COMMITMENTS AND CONTINGENCIES

12 Months Ended

Dec. 31, 2022

Commitments and Contingencies Disclosure [Abstract]

Employment Agreements

The Company has entered into executive employment agreements with the executives (the “Executive Employment Agreements”). The Executive Employment Agreements provide an annual base salary and the opportunity to participate in the Company’s equity compensation, employee benefit and bonus plans once they are established and approved by the Board. The Executive Employment Agreements contain severance provisions if such executive is terminated under certain conditions that would provide the executive with up to 12 months of their base salary and up to 12 months of continuation of health insurance benefits. Additionally, if the Company’s Chief Executive Officer is terminated under certain conditions or resigns for good reason within 12 months of a “change in control,” the Chief Executive Officer will be eligible to receive 18 months of his then-current salary, the amount of his target year-end annual non-equity incentive award, and accelerated vesting of all of his unvested options and restricted stock unit awards.

Periodically, the Company enters into separation and general release agreements with former executives of the Company that include separation benefits consistent with the former executives’ employment agreements. The Company recognized severance expense totaling approximately $0.4 million during the year ended December 31, 2021, which was paid in equal installments over 12 months from the date of separation. There was no accrued severance obligation as of December 31, 2022.

Office Leases

In July 2020, the Company entered into a 4-year lease for office space that expires on September 30, 2024 (the “Original Lease”). Base annual rent is $72,000, or $6,000 per month over the 4-year term. The Original Lease contains a 3-year renewal option. The Company recorded a right of use asset of $233,206 and an operating lease liability of $233,206 at the inception of the Original Lease in July 2020.

The Company estimated the present value of the lease payments over the remaining term of the lease using a discount rate of 12%, which represented the Company’s estimated incremental borrowing rate. The renewal options were excluded from the lease payments as the Company concluded the exercise of the option was not considered reasonably certain.

Operating lease cost under ASC 842 was approximately $71,520 for the years ended December 31, 2022 and 2021. Operating lease cost is included in general and administrative expenses on the accompanying consolidated statement of operations and comprehensive loss. The total cash paid for amounts included in the measurement of the operating lease liability and reported within operating activities was less than $0.1 million during the year ended December 31, 2022.

Future minimum payments under the Company’s lease liability were as follows:


Year ending December 31,	Operating Leases



2023	$	72,000
2024	54,000
Total lease payment	126,000
Less: imputed interest	(12,858)
Total	$	113,142

On October 3, 2022, the Company entered into a lease agreement (the “2023 Lease”) for its new headquarters in Raleigh, North Carolina. The landlord is required to make improvements to the facility before commencement of the 2023 Lease, which is expected to commence on or around April 1, 2023, for a term of 126 months (the “Initial Term”) and provides for rent abatement for the first six months of the Initial Term. Beginning on the seventh month of the Initial Term, base rent payments are approximately $24,000 per month ($38 per square foot), and increase each year, up to approximately $31,000 per month during the last six months of the Initial Term. The 2023 Lease may be extended for a period of five years at the option of the Company. The 2023 Lease also contains a tenant improvement allowance of $0.7 million. In accordance with ASC 842, Leases, the Company concluded that it does not control the underlying asset being constructed. As such, there is no impact to the Company’s consolidated financial statements for the year ended December 31, 2022.

Under the terms of the 2023 Lease, the Company is required to maintain a letter of credit as security for performance of lease obligations over the life of the lease. Accordingly, there is approximately $0.1 million classified as restricted cash under the letter of credit. As certain conditions are met, including the passage of time, the amount will be reduced to a minimum of $23,600, or the equivalent of approximately one month’s rent.

Legal

From time to time, the Company could become involved in disputes and various litigation matters that arise in the normal course of business. These may include disputes and lawsuits related to intellectual property, licensing, contract law and employee relations matters. Periodically, the Company reviews the status of significant matters, if any exist, and assesses its potential financial exposure. If the potential loss from any claim or legal claim is considered probable and the amount can be estimated, the Company accrues a liability for the estimated loss. Legal proceedings are subject to uncertainties, and the outcomes are difficult to predict; therefore, accruals are based on the best information available at the time. As additional information becomes available, the Company reassesses the potential liability related to pending claims and litigation.