COMMITMENTS AND CONTINGENCIES

9 Months Ended

Sep. 30, 2022

COMMITMENTS AND CONTINGENCIES.

COMMITMENTS AND CONTINGENCIES

NOTE 5  COMMITMENTS AND CONTINGENCIES

License Agreements

On November 20, 2020 the Company exclusively licensed intellectual property from The Ohio State Innovation Foundation (OSIF) pursuant to a license agreement. Under the license agreement, the Company is obligated to make payments to OSIF aggregating up to $1.3 million per product covered by the OSIF licensed patent rights upon the achievement of specified development and regulatory approval milestones and approximately $2.3 million per product covered by the OSIF licensed patent rights upon the achievement of specified sales milestones. The Company is also obligated to pay low single-digit royalties to OSIF based on net sales by the Company and its affiliates and sublicensees of each product covered by the OSIF licensed patent rights. In addition, in the event the Company sublicenses the OSIF licensed patent rights, the Company is obligated to pay OSIF a specified portion of income received from sublicensing. As of September 30, 2022, the Company has paid $0.5 million to OSIF under the license agreement.

Lease Agreements

In January 2022, we entered into a lease agreement for approximately 18,614 square feet of office and laboratory space in Boulder, Colorado (the “New Boulder Lease”) with aggregate payments of approximately $3.3 million over the initial 8.2-year term of the lease. The Company has the option to extend the New Boulder Lease for two additional terms of five years each. Further, the Company provided a standby letter of credit (LOC) of $0.8 million during the term of the lease as collateral for the Company’s obligations under the lease. Provided there has been no event of default by the Company during the initial 36-month term, the Company will replace the initial LOC with a replacement LOC in the amount of $0.5 million. The lease agreement includes a tenant improvement allowance for $1.0 million of construction costs to be reimbursed by the lessor and up to an additional $2.0 million (the “Finish Allowance”) of tenant improvement reimbursements as debt (see Note 8). The Company is obligated to pay the lessor an amount not to exceed 5% of the net rents from the property for operating costs. Such amounts are not included in the measurement of the lease liability and are recognized as variable lease expense when they are incurred. Variable lease expense under the New

Boulder Lease was $17,000 for the three and nine months ended September 30, 2022 and $0 for the three and nine months ended September 30, 2021. The New Boulder Lease is classified as an operating lease.

In September 2022, we exercised an option in the New Boulder Lease to occupy an additional 9,624 square feet of office and laboratory space (the “Expansion Space”). The lessor will deliver the Expansion Space on the earlier of January 1, 2023 or within three business days after the existing tenant vacates and surrenders legal possession. On the delivery date, the Company will receive an improvement allowance in the same amount per square foot provided for the original premises, pro-rated for the reduced term of the lease with respect to the Expansion Space. Base rent under the New Boulder Lease will be increased on a pro rata basis (at the same per square foot rental rate) based on the additional square footage of the Expansion Space. The option exercised for the Expansion Space was not recognized as part of the Company’s lease liability and ROU lease asset, as the Company does not yet have control over the Expansion Space.

The Company recorded a lease liability and ROU lease asset for the New Boulder Lease based on the present value of lease payments over the expected lease term, discounted using the Company’s incremental borrowing rate. The option to extend the New Boulder Lease was not recognized as part of the Company’s lease liability and ROU lease asset, as such extensions are not reasonably certain to occur. As of September 30, 2022, the weighted-average remaining lease term and the weighted-average discount rate for the New Boulder Lease was 7.5 years and 6%, respectively. Rent expense under the New Boulder Lease was $0.1 million and $0.3 million for the three and nine months ended September 30, 2022, respectively and $0 for the three and nine months ended September 30, 2021. Tenant improvements totaling $1.0 million were incurred by the Company and reimbursed by the lessor during the nine months ended September 30, 2022.

As of December 31, 2021, future minimum lease payments totaled $141,000, all of which will be paid in 2022. Future minimum lease payments under the New Boulder Lease as of September 30, 2022 are as follows (in thousands):

Year Ending December 31,
2022, remainder	$	—
2023		328
2024		446
2025		457
2026		468
Thereafter		1,602
Total undiscounted future minimum lease payments		3,301
Less: discount		705
Total lease liability	$	2,596

The Company additionally leases office and lab space under lease agreements which were extended in July 2022, to expire in August 2023. These leases were excluded from our lease liability and ROU asset calculations due to their short-term nature. Future minimum lease payments under these short-term leases as of September 30, 2022 total $38,000, all of which will be paid through the end of fiscal year 2022. Total rent expense under these short term leases were $72,000 and $180,000 for the three and nine months ended September 30, 2022, respectively and $22,000 and $66,000 for the three and nine months ended September 30, 2021.

Litigation

Liabilities for loss contingencies arising from claims, assessments, litigation, fines, penalties and other sources are recorded when it is probable that a liability has been incurred and the amount can be reasonably estimated. From time to time, the Company may become involved in legal proceedings arising in the ordinary course of business. The Company was not subject to any material legal proceedings during the nine months ended September 30, 2022 and no material legal proceedings are currently pending or threatened.

Indemnification Agreements

In the ordinary course of business, the Company may provide indemnification of varying scope and terms to vendors, lessors, business partners and other parties with respect to certain matters including, but not limited to, losses arising of breach of such agreements or from intellectual property infringement claims made by third parties. In addition,

the Company has entered into indemnification agreements with members of its Board of Directors that will require the Company, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is, in many cases, unlimited. To date, the Company has not incurred any material costs as a result of such indemnifications. The Company is not aware of any claims under indemnification arrangements, and it has not accrued any liabilities related to such obligations in its financial statements as of September 30, 2022.