Note 13 - Commitments and Contingencies

12 Months Ended

Dec. 31, 2022

Notes to Financial Statements

Commitments and Contingencies Disclosure [Text Block]

13. Commitments and Contingencies

2021 Loan Agreement

On March 11, 2021, the Company and Robert W. Duggan, the Executive Chairman, entered into a Loan Agreement in connection with Mr. Duggan lending the principal sum of $41.0 million to the Company. The Loan Agreement bore interest at a rate per annum equal to 5.0%, payable quarterly commencing on July 1, 2021. During the year ended December 31, 2021, the Company recorded $0.6 million of interest expense in relation to this Loan Agreement. In June 2021, the Loan Agreement was terminated and $41.0 million principal, together with approximately $0.6 million of accrued and unpaid interest, was fully settled via issuance of the Company’s common stock at a price per share of $16.40. Refer to Note 6 for additional details of the private placement sale.

2022 Loan Agreement

On September 20, 2022, the Company and Robert W. Duggan, the Executive Chairman, entered into a Loan Agreement (“2022 Loan Agreement”) in connection with Mr. Duggan lending the principal sum of $65.0 million to the Company. The Loan Agreement bears interest at a rate per annum equal to 5.0%, payable quarterly commencing on January 1, 2023, with the principal sum payable on March 20, 2024. On March 17, 2023, the Company and Mr. Duggan agreed to amend certain terms of the Loan Agreement. There were no changes to the interest rate, but the principal sum is now due and payable on September 30, 2024. During the year ended December 31, 2022, the Company recorded $0.9 million of interest expense in relation to the 2022 Loan Agreement.

Insurance Loan Agreement

On May 13, 2021, the Company secured its annual director and officer liability insurance policy. The total premiums for the policy were approximately $2.6 million, of which the Company made a down payment of $0.7 million and financed the balance of $1.9 million via an Insurance Loan Agreement. The Insurance Loan Agreement had an annual interest rate of 3.69% and required monthly payments through February 2022, upon which the Insurance Loan Agreement was paid in full. During the year ended December 31, 2022, the Company recorded $1.0 thousand of interest expense in relation to the Insurance Loan Agreement.

Operating Leases

In January 2017, the Company entered into a five-year lease (the “Existing Lease”) for approximately 15,700 square feet for its corporate headquarters located in Hayward, California. The lease commenced during July 2017.

In May 2019, the Company entered into Lease Amendment 1 (the “Lease Amendment”) in relation to the Existing Lease and added the lease of new premises of approximately 13,300 square feet and 21,300 square feet, (“Expansion Premises 1” and “Expansion Premises 2,” respectively). Additionally, the term of the Existing Lease was extended to October 2029 to be coterminous with Expansion Premises 1 and Expansion Premises 2.

The Company evaluated the lease amendment under the provisions of ASC 842. It concluded that the Lease Amendment would be accounted for as a single contract with the Existing Lease because the additional lease payments due to the Lease Amendment was not commensurate with the right-of-use asset granted to the Company. Though the Lease Amendment was accounted for as a single contract, the Existing Premises, Expansion Premises 1 (occupied in November 2019) and Expansion Premises 2 (occupied in May 2020) are accounted for as separate lease components. Accordingly, the Company measured and allocated consideration to each lease component as of the modification date.

Upon commencement of each lease component, the Company reassessed and calculated the lease liability and right-of-use asset for the respective component. As a result, at the modification date, the Company remeasured its existing lease liability and recorded an additional right-of-use asset and lease liability of $2.0 million. The Company also recorded an additional right-of-use asset and lease liability of $3.0 million and $4.8 million at the commencement of Expansion Premises 1 in November 2019 and Expansion Premises 2 in May 2020, respectively. At December 31, 2022, total right-of-use assets and lease lability was approximately $8.1 million and $10.0 million, respectively.

During the years ended December 31, 2022, 2021 and 2020, rent expense, including common area maintenance charges, was $2.1 million, $1.9 million and $1.7 million, respectively.

Supplemental balance sheet information related to leases (in thousands):

	Year Ended December 31,
Assets:	2022		2021
Right-of-use assets	$	8,062	$	8,785

	Year Ended December 31,
Liabilities:	2022		2021
Current operating lease liabilities	$	896	$	774
Non-current operating lease liabilities		9,144		10,040
Total lease liabilities	$	10,040	$	10,814

Total cash paid for operating lease liabilities (in thousands):

	Year Ended December 31,
	2022		2021		2020
Cash paid for operating lease liabilities	$	1,806	$	1,643	$	1,045

Maturities of operating lease liabilities were as follows (in thousands):

Year ending December 31:
2023	$	1,845
2024		1,910
2025		1,977
2026		2,046
2027		2,117
Thereafter		4,074
Total lease payments		13,969
Less imputed interest		(3,929	)
Total lease liabilities	$	10,040

Weighted-average remaining lease term and discount rate, as of December 31, 2022, were as follows:

Weighted-average remaining lease term	6.83
Weighted-average discount rate	10	%

Legal Proceedings

From time to time, we may be involved in a variety of claims, lawsuits, investigations, and proceedings relating to securities laws, product liability, patent infringement, contract disputes, and other matters relating to various claims that arise in the normal course of our business, including the matter described below. The outcome of any legal proceedings is unpredictable but, regardless of outcome, they can have an adverse impact on us because of defense and settlement costs, diversion of management resources, negative publicity, reputational harm, and other factors. We maintain insurance that may provide coverage for such matters, including customary employment practices liability insurance.

In November 2022, the employment of our former Chief Financial Officer, Sandra Gardiner, terminated. Ms. Gardiner’s departure was not the result of any disagreement with the Company on any matter relating to its operations, accounting policies or practices, although the Company determined that she was not eligible to receive any severance benefits under the terms and conditions of her then existing employment agreement. In March 2023, Ms. Gardiner filed an arbitration demand with JAMS seeking severance benefits and other remedies, alleging breach of contract and unlawful termination in violation of public policy, among other things. We believe that Ms. Gardiner’s claims are without merit and we intend to vigorously defend ourselves against them.  Because of the difficulty in predicting the outcome of any legal proceeding, particularly one that is in its early stages, the Company cannot predict what the final outcome of Ms. Gardiner’s arbitration proceeding will likely be. However, at this time, we believe that the final resolution of this matter will not adversely affect our consolidated position, results of operation, or cash flows.