Annual report pursuant to Section 13 and 15(d)

Leases

v3.20.2
Leases
12 Months Ended
Jul. 31, 2020
Leases [Abstract]  
Leases

Note 11 – Leases

 

In February 2016, the FASB issued ASU 2016-02, which supersedes previous lease accounting guidance (Topic 840) and establishes a right-of-use model that requires a lessee to record an asset and liability on the balance sheet for all leases with terms longer than 12 months. The Company does not have any material variable payments, residual value guarantees or restrictive covenants for its leases and does not have any leases with terms of 12 months or less.

 

On August 1, 2019, upon adoption of ASC Topic 842, the Company recorded right-of-use assets of approximately $1.4 million, lease liabilities of approximately $2.1 million and a reduction in deferred rent liabilities of $0.6 million for operating leases. Also, the adoption of ASC 842 did not have an impact on the Company’s beginning accumulated deficit balance.

 

Lease Agreements

 

On February 14, 2018, the Company entered into a lease agreement with MawIt Inc., for approximately 3,100 rentable square feet located at 24 N. Main Street, Pennington, New Jersey, which serves as the Company’s New Jersey corporate headquarters. The term of the lease commenced on March 1, 2018 and was to expire on April 30, 2020. In November 2018, the Company entered into an amended lease agreement for the addition of approximately 2,800 rentable square feet. The term of the amended lease commenced on January 15, 2019 and expires on December 31, 2020. Base rent under the amended lease agreement is $11,686 per month for each of the first two months, $11,929 per month for each of the third through fifteenth months and $12,173 per month for each of the sixteenth through twenty-three months. The Company prepaid rent of approximately $60,000 as per the terms of the amended agreement. The lease agreement also requires the Company to share in certain monthly operating expenses of the premises and required the Company to pay a security deposit of $23,372.

 

In March 2018, the Company entered into a Lease Assignment Agreement (the “Lease Assignment Agreement”) with Vividion Therapeutics, Inc. (“Vividion”) for the Company’s 34,054 square foot location at 5820 Nancy Ridge Drive, San Diego, California, 92121 (“NR Premises”), whereby the Company assigned its Lease Agreement with ARE-SD Region No. 18, LLC (the “Landlord”) to Vividion. Under the Lease Assignment Agreement, Vividion pays directly to Landlord the base rent of $101,500 per month (based upon $2.98 per rentable square foot of the NR Premises) plus operating expenses and property management fees attributable to the NR Premises currently estimated at $46,500 per month (including an estimate for utilities) during the term of the Lease Assignment Agreement, which was the remaining term of the lease through October 2025.

 

While the lease and all of the related obligations were assigned to Vividion, prior to November 2019 the Company could ultimately have an obligation on the Lease Assignment Agreement if Vividion defaulted on their obligation to the Landlord after all remedies were exhausted by the Landlord with regard to Vividion’s obligations. Such an event was not considered probable and no obligation was recorded as of July 31, 2019. In connection with the Company entering into a new lease in November 2019 (See below), the landlord released the Company from any obligations and liabilities arising under the Lease Assignment Agreement.

 

In conjunction with the Lease Assignment Agreement, the Company and Vividion also entered into a sublease (the “Sublease”), with respect to the 12,442 square-foot location at 3565 General Atomics Court, Suite 100, San Diego, CA, 92121 leased by Vividion from Landlord which serves as the Company’s California office (the “Sublease Premise”). Under the Sublease, the Company shall pay to Vividion base rent of $49,768 per month subject to an annual 3% increase, (based upon $4.00 per rentable square foot of the Sublease Premises) plus operating expenses and property management fees attributable to the Sublease Premises currently estimated at $30,400 per month during the term of the Sublease, which extends through September 2020. The Company moved to the new location in April 2018.

 

At the time of the lease agreements noted above, the Company had a deferred rent liability recorded on the consolidated balance sheet of $1.1 million, of which $0.6 million is remaining as of July 31, 2019. The deferred rent liability associated with the lease/sublease was reduced to $0 on August 1, 2019 upon adoption of ASC Topic 842.

 

In November 2019, the Company entered into a lease agreement for its office space in California directly with the landlord, ARE-SD Region No. 18, LLC (“ARE”), with an effective date being the earlier of: (a) October 1, 2020 or (b) the day after the termination of the Company’s existing sublease if it ends prior to September 30, 2020. The lease is for a term of 36 months, with one renewal option for an additional 36-month term. The minimum monthly payment is $55,989. The Company accounted for the ARE lease as a contract modification, and accordingly, recorded an additional right-of-use asset for approximately $5.3 million and lease liabilities of approximately $5.2 million for this operating lease.

 

The Company has operating leases for corporate offices and lab space. These leases have remaining lease terms of approximately one year to seven years, some of which include options to extend the lease. For any lease where the Company is reasonably certain that a renewal option will be exercised, the lease payments associated with the renewal option period are included in the ROU asset and lease liability as of July 31, 2020.

 

Supplemental balance sheet information related to leases as of July 31, 2020 was as follows:

 

Operating Leases:        
Operating lease right-of-use assets   $ 5,948,224  
Operating Leases:        
Current portion included in current liabilities   $ 500,357  
Long-term portion included in non-current liabilities     5,874,442  
Total operating lease liabilities   $ 6,374,799  

 

Supplemental lease expense related to leases was as follows:

 

   

For the Year

Ended

July 31, 2020

 
Operating lease cost   $ 1,273,616  
Total lease expense   $ 1,273,616  

 

Other information related to leases where the Company is the lessee is as follows:

 

   

As of

July 31, 2020

 
Weighted-average remaining lease term     6.1 years  
         
Weighted-average discount rate     10.00 %

 

Supplemental cash flow information related to operating leases was as follows:

 

   

For the Year Ended

July 31, 2020

 
Cash paid for operating lease liabilities   $ 1,406,167  
Total cash flows related to operating lease liabilities   $ 1,406,167  

 

Future minimum lease payments under non-cancellable leases as of July 31, 2020 were as follows:

 

Years ending July 31,      
2021   $ 1,116,946  
2022     1,392,265  
2023     1,431,473  
2024     1,474,552  
2025     1,516,126  
Thereafter     1,774,569  
Total minimum lease payments     8,705,931  
Less: Imputed interest     (2,331,132 )
Total   $ 6,374,799  

 

Disclosures related to periods prior to adoption of ASC 842

 

The future minimum obligations under leases in effect as of July 31, 2019 having a noncancelable term in excess of one year as determined prior to the adoption of ASC 842 are as follows:

 

Years ending July 31,        
2020   $ 1,356,000  
2021     308,000  
Total minimum lease payments   $ 1,664,000