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COMMITMENTS AND CONTINGENCIES

3 Months Ended

Mar. 31, 2024

COMMITMENTS AND CONTINGENCIES

COMMITMENTS AND CONTINGENCIES

6. COMMITMENTS AND CONTINGENCIES

Short-Term Operating Leases

Capricor leases office space in Beverly Hills, California from The Bubble Real Estate Company, LLC ("Bubble Real Estate") pursuant to a lease beginning in 2013. Capricor subsequently entered into several amendments modifying certain terms of the lease. Effective January 1, 2021, we entered into a month-to-month lease amendment with Bubble Real Estate, which is terminable by either party upon 90 days’ written notice to the other party. Commencing in July 2022, the monthly lease payment was $7,869 per month. Effective July 1, 2023, the monthly lease payment was reduced to $7,619 per month.

Commencing March 13, 2024, we entered into a License and Services Agreement with Azzur Cleanrooms-on-Demand – San Diego, LLC (the “Azzur License Agreement”) pursuant to which we have been granted an exclusive license to use certain space and the non-exclusive right to use certain equipment and property for our early phase clinical and/or

pre-clinical manufacturing purposes. Our estimated license fee is approximately $110,615 per month for a term of approximately 6.5 months.

Expenses incurred under short-term operating leases for the three months ended March 31, 2024 and 2023 were $92,913 and $23,607, respectively. Short-term operating lease payments for the three months ended March 31, 2024 and 2023 were $384,357 and $23,607, respectively. As of March 31, 2024, the Company recorded $291,444 as a prepaid expense related to an upfront payment made pursuant to the Azzur License Agreement on the Company’s condensed consolidated balance sheet.

Long-Term Operating Leases

Capricor leases facilities in Los Angeles, California from Cedars-Sinai Medical Center (“CSMC”), pursuant to a lease (the “Facilities Lease”) entered into in 2014. Capricor has subsequently entered into several amendments modifying certain terms of the lease. In July 2022, we entered into an amendment for an additional 24-month period extending the term through July 31, 2024 with a monthly lease payment of $10,707. We entered into another amendment effective August 1, 2024 pursuant to which Capricor was granted an option to extend the lease for an additional 24-month period extending the term through July 31, 2026 with a monthly lease payment of $11,028.

Capricor leases facilities in San Diego, California from Altman Investment Co., LLC (“Altman”). The Company entered into a lease agreement commencing October 1, 2021 with Altman for 9,396 square feet of office and laboratory space (the “San Diego Lease”). The rent is subject to a 3.0% annual rent increase during the initial lease term of five years, plus certain operating expenses and taxes. The San Diego Lease contains an option for Capricor to renew it for an additional term of five years. The Company has subsequently entered into several amendments to the San Diego Lease increasing the square footage of the premises. Effective December 1, 2022, the monthly lease payment was $51,444 per month. Effective October 1, 2023, the monthly lease payment was increased to $58,409 per month.

Effective November 1, 2021, the Company entered into a vivarium agreement with Explora BioLabs, Inc. (“Explora”), a Charles River Company, for vivarium space and services. Under the terms of the agreement, the Company is obligated to pay a base rent of $4,021 per month for an exclusive large vivarium room located in San Diego, California. In December 2022, we were notified by Explora of a monthly rent escalation of 4.5% bringing the base rent to approximately $4,202 per month effective January 1, 2023. Additionally, effective January 1, 2024, we entered into an amendment for an additional 24-month period extending the term through December 31, 2025 with a monthly lease payment of $4,370 commencing on January 1, 2024 with a 4.0% annual rent increase.

The long-term real estate operating leases are included in “lease right-of-use assets, net” on the Company’s condensed consolidated balance sheet and represent the Company’s right-to-use the underlying assets for the lease term. The Company’s obligation to make lease payments are included in “lease liabilities, current” and “lease liabilities, net of current” on the Company’s condensed consolidated balance sheet.

The tables below exclude short-term operating leases. The following table summarizes maturities of lease liabilities and the reconciliation of lease liabilities as of March 31, 2024:


2024		$	668,233
2025			914,220
2026			634,889
2027			—
2028			—
Total minimum lease payments			2,217,342
Less: imputed interest			(196,343)
Total operating lease liabilities		$	2,020,999
Included in the consolidated balance sheet:
Current portion of lease liabilities		$	771,506
Lease liabilities, net of current			1,249,493
Total operating lease liabilities		$	2,020,999

Other Information:
Weighted average remaining lease term			2.44 years
Weighted average discount rate			7.40%

As of March 31, 2024, ROU assets for operating leases were approximately $1.8 million and operating lease liabilities were approximately $2.0 million. The following table contains a summary of the lease costs recognized and lease payments pertaining to the Company’s long-term operating leases under ASC 842 for the period indicated.


	Three months ended March 31,
	2024			2023
Lease costs	$	210,357		$	192,606
Lease payments		226,625			199,058

Legal Contingencies

The Company is not a party to any material legal proceedings at this time. From time to time, the Company may become involved in various legal proceedings that arise in the ordinary course of its business or otherwise. The Company records a loss contingency reserve for a legal proceeding when it considers the potential loss probable and it can reasonably estimate the amount of the loss or determine a probable range of loss. The Company has not recorded any material accruals for loss contingencies as of March 31, 2024. The Company has received a letter from CSMC alleging certain overdue payment obligations and alleged breaches (see Note 7 – “License and Distribution Agreements”).

Accounts Payable

During the normal course of business, disputes with vendors may arise. If a vendor disputed payment is probable and able to be estimated, we will record an estimated liability.

Other Funding Commitments

The Company is a party to various agreements, principally relating to licensed technology, that require future payments relating to milestones that may be met in subsequent periods or royalties on future sales of specific products (see Note 7 – “License and Distribution Agreements”).

Additionally, the Company is a party to various agreements with contract research, manufacturing and other organizations that generally provide for termination upon notice, with the exact amounts owed in the event of termination to be based on the timing of termination and the terms of the agreement.

Employee Severances

The Board of Directors approves severance packages for specific full-time employees based on their length of service and position ranging up to six months of their base salaries, in the event of termination of their employment, subject to certain conditions. No liability under these severance packages has been recorded as of March 31, 2024.