Annual report pursuant to Section 13 and 15(d)

Commitments and Contingencies

v3.5.0.2
Commitments and Contingencies
12 Months Ended
Jul. 31, 2016
Commitments and Contingencies Disclosure [Abstract]  
Commitments and Contingencies

Note 9—Commitments and Contingencies

 

In the ordinary course of business, the Company may become a party to lawsuits involving various matters. The Company is unaware of any such lawsuits presently pending against it which individually or in the aggregate, are deemed to be material to the Company’s financial condition or results of operations.

 

Effective November 1, 2015, the Company entered into a 12-month lease agreement for office space in Campbell, California to support its legal department. The base rent is $2,008 per month.

 

On December 31, 2014, the Company entered into a lease agreement for approximately 34,000 rentable square feet located at 5820 Nancy Ridge Drive, San Diego, California to serve as the Company’s new corporate headquarters and research and development laboratory. The lease term commenced on October 19, 2015 and expires 120 months after commencement. The Company has an option to extend the lease for an additional 5 years, if notice is given within 12 months prior to the expiration of the lease term. The Company also has the right to terminate the lease after the expiration of the 84th month after the lease commencement so long as the Company delivers to the landlord a written notice of its election to exercise its termination right no less than 12 months in advance. The lease agreement provides for base rent at $2.65 per rentable square feet, subject to a 3% rate increase on each annual anniversary of the first day of the first full month during the term of the lease agreement. Upon commencement of the lease, 12 months of rent abatement is provided. Under the terms of the lease, the Company is also required to share in certain monthly operating expenses of the premises and in December 2014 the Company delivered a security deposit of approximately $90,000.

 

Total rent expense for the years ended July 31, 2016 and 2015 was approximately $1.4 million and $0.3 million, respectively.

 

At July 31, 2016, future minimum lease payments under the non-cancelable operating leases are approximately as follows:

 

Year Ending July 31,   Operating Lease  
2017   $ 959,000  
2018     1,145,000  
2019     1,173,000  
2020     1,208,000  
2021     1,245,000  
Thereafter     5,598,000  
Total minimum payments   $ 11,328,000  

 

On March 6, 2015, the Company entered into two research and development services agreements, one with Rev.1 Engineering Inc., (or, Rev.1) and the other with Merlin CSI, LLC (or, Merlin). Each company had been engaged to perform research, development, testing, and regulatory filing services related to an engineering project. During Fiscal 2016, the Company terminated both the Rev.1 and Merlin agreements and no longer has any obligations to either company under their respective agreement. As a result of terminating the Rev.1 agreement, the Company forfeited the remaining deposit with Rev.1, which resulted in the Company recording approximately $0.2 million of expense upon its release of the deposit.

 

The Company has entered employment agreements with each of its executive level officers. Generally, the terms of each agreement are such that if the officer is terminated other than for cause, death or disability, or if the case of termination of employment with the Company is for good cause, the officer shall be entitled to receive severance payments equal to either 6 or 12 months of his/her then-current annual base salary plus any accrued bonus and 6 or 12 months of benefits coverage.

 

On April 15, 2016, the Company and the Company’s former Chief Scientific Officer (or, CSO) entered into a separation, release and consulting agreement, in which the CSO would voluntarily resign from the Company on June 18, 2016 and become a consultant of the Company. The terms of the agreement afforded no severance pay related to the termination of employment; however, the terms of the agreement provide for a fee of $30,000 per month for consulting services. The consulting agreement will terminate automatically on June 18, 2017, unless renewed by a written agreement of both parties or earlier terminated as provided within the agreement. On the date of termination of employment, the Company recorded a liability of $360,000 in its balance sheet as the consulting services to be performed are not substantive and the offsetting charge was recorded in research and development as other outside service fees. As of July 31, 2016, the Company has paid $30,000 against the liability.

 

On December 27, 2015, the Company and the Company’s former Chief Medical Officer (or, CMO) entered into a separation and release agreement pursuant to which the Company agreed to pay the former CMO $286,000, less applicable withholdings, in the form of salary continuation in accordance with the Company’s customary payroll practices. In addition, the CMO would be eligible to receive a bonus for calendar year 2015, should the Company’s Board of Directors or Compensation Committee thereof choose to grant discretionary bonuses to the Company’s officers. At the separation date, the Company recorded a liability of $286,000 in its balance sheet and the offsetting charge was recorded in research and development as salary expense. As of July 31, 2016, the Company has paid approximately $150,000 against the liability and no bonuses were granted or paid related to calendar 2015.

 

On June 24, 2015, the Company and the Company’s former Chief Financial Officer (or, CFO) entered into a separation and release agreement pursuant to which the Company agreed to pay the former CFO $309,833, less applicable withholdings, in the form of salary continuation in accordance with the Company’s customary payroll practices and a pro rata bonus for fiscal year 2015 equal to $35,100. The Company agreed to pay for 12 months of benefits coverage and accelerated the vesting of 31,586 stock options as of the date of termination and to extend the exercise period for one year post-termination for all vested stock options. The Company accounted for the stock option modification pursuant to ASC Topic 718. Based on a Black-Scholes Option Pricing Model (assuming a term of 1 year, no dividend yield, volatility of 74.61% and a risk free interest rate of .30%), the Company recorded at July 31, 2015 approximately $41,000 of additional stock-based compensation expense in its statement of operations related to the stock option modification. The additional stock-based compensation was categorized as general and administrative expense. At July 31, 2015, the Company recorded a liability of approximately $354,000 in its balance sheet and the offsetting charge was recorded in general and administrative as salary expense. As of July 31, 2016, all monetary obligations have been paid in full and all related options have terminated as they were not exercised during the post-termination period.