Quarterly report pursuant to Section 13 or 15(d)

Commitments and Contingencies

v3.22.2.2
Commitments and Contingencies
9 Months Ended
Sep. 30, 2022
Commitments and Contingencies.  
Commitments and Contingencies

7. Commitments and Contingencies

Leases

The Company leases office space in Chesterbrook, Pennsylvania and equipment. The Company’s principal office is located at 955 Chesterbrook Boulevard, Chesterbrook, Pennsylvania, where the Company currently leases approximately 8,231 square feet of developed office space on the first floor and 40,565 square feet of developed office space on the second floor. The lease term for this space extends through May 2028. On October 11, 2018, the Company entered into an agreement with The Vanguard Group, Inc., or Vanguard, whereby Vanguard agreed to sublease the 40,565 square feet of space on the second floor for an initial term of 37 months. On October 2, 2020, Vanguard notified the Company that they exercised the first option to extend the sublease term for three years through November 30, 2024. Vanguard has a second option to extend the sublease term for an additional three years through November 30, 2027. The sublease provides for rent abatement for the first month of the term; thereafter, the rent payable to the Company by Vanguard under the sublease is (i) $0.50 less during months 2 through 13 of the sublease and (ii) in month 14 and thereafter of the sublease, $1.00 less than the base rent payable by the Company under its master lease with Chesterbrook Partners, L.P. Vanguard also is responsible for paying to the Company all tenant energy costs, annual operating costs, and annual tax costs attributable to the subleased space during the term of the sublease. Rent expense and associated sublease income are recorded in the Company’s consolidated statements of operations and comprehensive loss as other income (expense).

Supplemental balance sheet information related to leases was as follows (in thousands):

    

September 30, 2022

    

December 31, 2021

Operating leases:

 

  

 

  

Operating lease right-of-use assets

 

$

4,352

 

$

4,706

Other current lease liabilities

864

788

Operating lease liabilities

5,653

6,309

Total operating lease liabilities

$

6,517

$

7,097

Finance leases:

Property and equipment, at cost

$

29

$

45

Accumulated depreciation

(1)

(41)

Property and equipment, net

28

4

Other current lease liabilities

9

4

Other long-term liabilities

19

Total finance lease liabilities

$

28

$

4

The components of lease expense were as follows (in thousands):

Three Months Ended

Nine Months Ended

September 30, 

September 30, 

    

2022

    

2021

    

2022

    

2021

Operating lease costs:

Operating lease rental expense

$

330

$

309

$

993

$

1,362

Other income

(340)

(305)

(999)

(881)

Total operating lease costs

$

(10)

$

4

$

(6)

$

481

Finance lease costs:

Amortization of right-of-use assets

1

2

5

6

Interest on lease liabilities

Total finance lease costs

$

1

$

2

$

5

$

6

Supplemental cash flow information related to leases was as follows (in thousands):

Nine Months Ended

September 30, 

    

2022

    

2021

Cash paid for amounts included in the measurement of lease liabilities

 

  

 

  

Operating cash flows from operating leases

$

(230)

$

(647)

Financing cash flows from finance leases

(4)

 

(6)

Our operating lease liabilities will mature, as follows (in thousands):

    

Operating Leases

 

Financing Leases

2022 (October 1 - December 31)

$

355

$

2

2023

1,425

11

2024

1,450

11

2025

1,474

7

2026

1,498

2027 and beyond

2,163

Total minimum lease payments

$

8,365

$

31

Interest Expense

(1,848)

(3)

Lease liability

$

6,517

$

28

Per the terms of our sublease, we expect the following inflows (in thousands):

    

Sublease

2022 (October 1 - December 31)

$

282

2023

1,139

2024

 

996

Total minimum lease payments

$

2,417

Lease term and discount rates are as follows:

Nine Months Ended September 30, 

 

2022

 

2021

Weighted average remaining lease term (years)

Operating leases

6

7

Finance leases

3

1

Weighted average discount rate

Operating leases

9.2%

9.2%

Finance leases

6.5%

6.5%

Legal Proceedings

In October and November 2018, the Company and certain current and former officers and directors were sued in three purported class actions filed in the U.S. District Court for the Eastern District of Pennsylvania, or the EDPA, alleging violations of the federal securities laws. In January 2019, the three lawsuits were consolidated into one action. On February 11, 2021, the parties agreed in principle to a settlement of $8.5 million, all of which was to be paid by the Company’s insurance carriers, subject to approval by the Court. The Court approved the settlement on August 2, 2021. The Company and the individual defendants did not acknowledge any wrongdoing as part of the settlement. The Company recorded the $8.5 million estimated settlement liability and the $8.5 million estimated insurance recovery in its 2020 financial statements. As expected, the $8.5 million was paid by the Company’s insurance carriers, and the litigation is now resolved. The Company continues to believe that the claims were without merit.

In December 2018, a shareholder derivative action was filed on behalf of the Company and against certain current and former officers and directors in the EDPA, and in February 2019, two additional, similar shareholder derivative actions were filed in the U.S. District Court for the District of Delaware. A fourth similar shareholder derivative action was filed in the EDPA in September 2019, and a fifth, similar derivative action was filed in the EDPA in November 2019. A similar sixth derivative action was filed in the EDPA in September 2020. These cases involved facts similar to the consolidated securities lawsuits. The parties agreed to a settlement, which was approved by the Court on August 2, 2021. The individual defendants did not acknowledge any wrongdoing as part of the settlement. The Company agreed to make certain corporate governance changes, and a monetary payment of $500,000 was made to plaintiffs’ counsel, all of which was funded by the Company’s insurance carriers. The Company recorded in the fourth

quarter of 2020 an estimated liability of $0.5 million and a corresponding insurance recovery of the same amount. The litigation is now resolved.