Commitments And Contingencies

9 Months Ended

Sep. 30, 2022

Commitments And Contingencies [Abstract]

8. Commitments and Contingencies

2021 Loan Agreement

On March 11, 2021, the Company and Robert W. Duggan, the Executive Chairman, entered into a Loan Agreement (“2021 Loan Agreement”) in connection with Mr. Duggan lending the principal sum of $41.0 million to the Company. The 2021 Loan Agreement bore interest at a rate per annum equal to 5.0%, payable quarterly commencing on July 1, 2021. During the nine-month period ended September 30, 2021, the Company recorded $0.6 million of interest expense in relation to this 2021 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. During the three-month period ended September 30, 2022, the Company recorded $0.1 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 nine-month period ended September 30, 2022, the Company recorded $1.0 thousand of interest expense in relation to this 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 in 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.

Information related to the Company’s right-of-use assets and related lease liabilities are as follows (in thousands, except for remaining lease term and discount rate):


Year Ending December 31:
2022 (remaining 3 months)	$	452
2023		1,845
2024		1,910
2025		1,977
2026		2,046
Thereafter		6,191
Total lease payments		14,421
Less imputed interest		(4,180)
Total lease liabilities	$	10,241


Other supplemental information:
Current operating lease liabilities	$	858
Non-current operating lease liabilities		9,383
Total lease liabilities	$	10,241

Cash paid for operating lease liabilities	$	1,353

Weighted average remaining lease term		7.09
Weighted average discount rate		10%

Rent expense, including common area maintenance charges, was $0.5 million for each of the three-month periods ended September 30, 2022 and 2021; and was approximately $1.5 million during the nine-month periods ended September 30, 2022 and 2021, respectively.

Legal Proceedings

The Company maintains indemnification agreements with its directors and officers that may require the Company to indemnify them against liabilities that arise by reason of their status or service as directors or officers, except as prohibited by applicable law.

From time to time, the Company 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 the Company’s business, such as demands to inspect Company records and correspondence from the SEC and other government officials. The Company currently believes that these ordinary course matters are not material to the consolidated financial statements of the business; however, the results of litigation and claims are inherently unpredictable.

In February 2022, a civil securities lawsuit was filed in the U.S. District Court for the Northern District of California against the Company and certain of its executive officers, following the Company’s announcement on February 8, 2022 that it had received an Additional Information (“AI”) letter from the FDA indicating that the FDA did not believe the Company provided sufficient clinical evidence to support its 510(k) submission to add the treatment of sebaceous hyperplasia to the CellFX System’s current U.S. labeling, and the subsequent decline of the market price of the Company’s common stock. The lawsuit seeks class certification, unspecified damages, fees, costs, and expenses. Based upon currently available information, the Company believes the allegations in this case are without merit and will defend itself vigorously against them. In August 2022, the Company filed a motion to dismiss the case in its entirety, and an estimate of possible loss or range of loss, if any, cannot be made at this time. The Company expects the Court to rule of the Company’s motion to dismiss in early 2023.

The results of legal proceedings and claims are inherently unpredictable. However, the Company does not believe any currently pending matters will have a material adverse effect on the business based on the Company’s current understanding of such matters.