Annual report pursuant to Section 13 and 15(d)

Commitments, Contingencies, Guarantees and Indemnifications

v3.20.2
Commitments, Contingencies, Guarantees and Indemnifications
12 Months Ended
Mar. 31, 2020
Commitments and Contingencies Disclosure [Abstract]  
Commitments, Contingencies, Guarantees and Indemnifications

From time to time, we may become involved in claims and other legal matters arising in the ordinary course of business. Management is not currently aware of any claims made or other legal matters that will have a material adverse effect on our consolidated financial position, results of operations or our cash flows.

 

We indemnify our officers and directors for certain events or occurrences while the officer or director is or was serving at our request in such capacity. The term of the indemnification period is for the officer’s or director’s lifetime. We will indemnify the officers or directors against any and all expenses incurred by the officers or directors because of their status as one of our directors or executive officers to the fullest extent permitted by Nevada law. We have never incurred costs to defend lawsuits or settle claims related to these indemnification agreements.  We have a director and officer insurance policy which limits our exposure and may enable us to recover a portion of any future amounts paid.  We believe the fair value of these indemnification agreements is minimal. Accordingly, there are no liabilities recorded for these agreements at March 31, 2020 or 2019.

 

In the normal course of business, we provide indemnifications of varying scopes under agreements with other companies, typically clinical research organizations, investigators, clinical sites, suppliers and others.  Pursuant to these agreements, we generally indemnify, hold harmless, and agree to reimburse the indemnified parties for losses suffered or incurred by the indemnified parties in connection with the use or testing of our product candidates or with any U.S. patents or any copyright or other intellectual property infringement claims by any third party with respect to our product candidates.  The terms of these indemnification agreements are generally perpetual.  The potential future payments we could be required to make under these indemnification agreements is unlimited.  We maintain liability insurance coverage that limits our exposure.  We believe the fair value of these indemnification agreements is minimal.  Accordingly, we have not recorded any liabilities for these agreements at March 31, 2020 or 2019.

 

Leases

 

Financing Lease

 

At March 31, 2020 and 2019, the following assets are subject to financing lease obligations and included in property and equipment:

 

    March 31,  
    2020     2019  
             
Office equipment   $ 14,700     $ 14,700  
                 
Accumulated depreciation     (9,400 )     (6,500 )
                 
Net book value   $ 5,300     $ 8,200  

 

Amortization expense for assets recorded under financing leases is included in depreciation expense.  Future minimum payments, by year and in the aggregate, required under our financing lease are as follows:

 

Fiscal Years Ending March 31,

     
2021   $ 3,300  
2022     3,000  
Future minimum lease payments     6,300  
         
    Less imputed interest included in minimum lease payments     (700 )
         
Present value of minimum lease payments     5,600  
         
    Less current portion     (3,300 )
         
Financing lease obligation - non-current portion   $ 2,300  

 

Operating Lease

 

We lease our headquarters office and laboratory space in South San Francisco, California under the terms of a lease that expires on July 31, 2022 and that provides an option to renew for an additional five years at then-current market rates. Consistent with the guidance in ASC 842, effective beginning April 1, 2019, we have recorded this lease in our Consolidated Balance Sheet as an operating lease. For the purpose of determining the right-of-use asset and associated lease liability, we determined that the renewal of this lease is reasonably probable. The lease of our South San Francisco facilities does not include any restrictions or covenants requiring special treatment under ASC 842.

 

The following table summarizes the presentation of the operating lease in our Condensed Consolidated Balance Sheet at March 31, 2020:

 

    As of March 31, 2020  
Assets      
Right of use asset – operating lease   $ 3,579,600  
         
Liabilities        
Current operating lease obligation   $ 313,400  
Non-current operating lease obligation     3,715,600  
Total operating lease liability   $ 4,029,000  

 

The following table summarizes the effect of operating lease costs in our consolidated statements of operations:

 

    For the Fiscal Year Ended  
    March 31, 2020  
Operating lease cost   $ 692,300  
         

 

The minimum (base rental) lease payments related to our South San Francisco operating lease are expected to be as follows:

 

Fiscal Years Ending March 31,

     
2021   $ 645,800  
2022     668,400  
2023     726,000  
2024     766,000  
2025     789,000  
Thereafter     1,931,400  
Total lease expense     5,526,600  
Less imputed interest     (1,497,600 )
Present value of operating lease liabilities   $ 4,029,000  

 

The remaining lease term, including the assumed five-year extension at the expiration of the current lease period, and the discount rate assumption for our South San Francisco operating lease is as follows:

 

    As of March 31, 2020  
Assumed remaining lease term in years     7.33  
Assumed discount rate     8.54%  

 

The interest rate implicit in lease contracts is typically not readily determinable and, as such, we used our estimated incremental borrowing rate based on information available at the adoption of ASC 842, which represents an internally developed rate that would be incurred to borrow, on a collateralized basis, over a similar term, an amount equal to the lease payments in a similar economic environment.

 

Supplemental disclosure of cash flow information related to our operating leases included in cash flows used by operating activities in the consolidated statements of cash flows is as follows:

 

    For the Fiscal Year Ended  
    March 31, 2020  

Cash paid for amounts included in the

   measurement of lease liabilities

  $ 753,900  
         

 

During the fiscal year end March 31, 2020, other than the initial adoption of ASC 842 that required right of use assets and lease liabilities to be recorded, we recorded no new right of use assets arising from new lease liabilities.

 

We also lease a small office in the San Francisco Bay Area under a month-to-month arrangement at insignificant cost and have made an accounting policy election not to apply the ASC 842 operating lease recognition requirements to such short-term lease. We recognize the lease payments for this lease in general and administrative expense over the lease term. We recorded rent expense of $14,000 and $13,200 for the fiscal years ended March 31, 2020 and 2019, respectively, attributable to this lease.

 

Debt Repayment

 

At March 31, 2020, future minimum principal payments on an outstanding note related to an insurance premium financing arrangement in the remaining principal amount of $56,500, which will be repaid in monthly principal and interest installments of $6,500 through December 2020.