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LEASES
 12 Months Ended
Dec. 31, 2022
Leases  
LEASES

   

7. LEASES

 

The Company leases corporate office space in Los Gatos, California. In August 2020, the Company and its landlord amended the lease for this office. The amendment extended the expiration date of the operating lease to January 2026 and increased the space from 3,396 square feet to 4,101 square feet. Under ASC 842, the lease amendment was treated as a separate lease for the new space and a modification of the lease for the original space. In January 2021 the additional space became available for use, and the Company recorded an additional ROU asset and corresponding liability of approximately $144,000. The lease liability is based on the present value of the minimum lease payments, discounted using the Company’s estimated incremental borrowing rate of 5.25%. The lease contains escalating payments on the anniversary of the original commencement which are included in the measurement of the initial lease liability. Additional payments based on a change in the Company’s share of the operating expenses, including property taxes and insurance, are recorded as a period expense when incurred.

 

In March 2021, the Company began leasing 474 square feet of office space in Tempe, Arizona. The new lease is classified as an operating lease with an initial term of two years and an option to extend for an additional three years through February 2026. The renewal option was exercised in January 2023. The lease also contains a performance standard for research collaboration with Arizona State University. The agreement requires a minimum value of collaborative research in each year of the lease. The lease is accounted for under ASC 842 and accordingly, the research payments are included in the ROU and lease liability at the commencement. In March 2021, the Company recorded an ROU and associated lease liability of approximately $238,000. The lease liability is based on the present value of the minimum lease payments, discounted using the Company’s estimated incremental borrowing rate of 5.25% over five years, as the Company expects to lease the space through the three-year extension. The lease also contains escalating payments on the anniversary of the original commencement which are included in the measurement of the initial lease liability.

 

In October 2019, the Company entered into an agreement to lease a tool for use in the development of the Company’s technology. The lease is for five years at $150,000 per month and commenced on August 1, 2021. A prepayment of $450,000 was made in year ended December 31, 2020 which represents the final three monthly payments under the lease and was recorded as a long-term prepaid until the lease commencement. At commencement, the Company recorded an ROU asset of approximately $6.4 million and a corresponding lease liability of approximately $6.0 million. The lease was classified as a financing lease and accordingly, amortization is recorded as a research and development expense in the Company’s statement of operations. Interest expense is also recorded and included in other income or expense in the Company’s statement of operations. The lease liability is based on the present value of the minimum lease payments, discounted using the Company’s estimated incremental borrowing rate of 5.25% at the time of commencement. The lease payment of $150,000 per month includes approximately $30,000 in supplies and maintenance that is recorded as an operating expense and is not included in the valuation of the lease liability. The Company elected to exclude these costs from the asset and related lease liability valuation for this class of assets. These costs will be expensed as operating expenses in the period incurred. This lease contains a provision for an annual adjustment of lease payments based on tool availability and usage. The potential lease payment adjustment is determined on August 1 of each year of the lease and is calculated based on the tool availability and usage for the preceding 12 months. Effective August 1, 2022, the lease payments for this tool were reduced to $100,824 per month for the period August 1, 2022 through July 31, 2023. This adjustment to the variable lease payments resulted in a reduction in ROU and corresponding lease liability.

 

Lease expense for operating leases consists of the lease payments recognized on a straight-line basis over the lease term. Expenses for financing leases consists of the amortization expenses recognized on a straight-line basis over the lease term and interest expense. The components of lease costs were as follows (in thousands): 

         
   Year Ended December 31, 
   2022   2021 
Financing lease costs:          
Amortization of ROU assets  $1,229   $532 
Interest on lease liabilities   255    128 
Total financing lease costs  $1,484   $660 
           
Operating lease costs          
Fixed lease costs  $248   $238 
Short-term lease costs   35    44 
Total operating lease costs  $283   $282 

  

Future minimum payments under non-cancellable leases as of December 31, 2022 were as follows (in thousands): 

         
For the Year Ended December 31,  Financing leases   Operating leases 
2023  $1,161   $253 
2024   1,436    278 
2025   1,436    284 
2026   478    21 
Total future minimum lease payments   4,511    836 
Less imputed interest   (399)   (70)
Total lease liability  $4,112   $766 

 

The below table provides supplemental information and non-cash activity related to the Company’s operating and financing leases are as follows (in thousands):

         
   Year Ended December 31, 
   2022   2021 
Operating cash flow information:          
Cash paid for amounts included in the measurement of operating lease liabilities  $265   $143 
Cash paid for amounts included in the measurement of financing lease liabilities  $1,239   $598 
Non-cash activity:          
Right-of-use assets obtained in exchange for operating lease obligations  $–   $382 
Right-of-use assets obtained in exchange for financing lease obligations  $–   $6,383 
Remeasurement of right-of use asset and liability in financing lease obligations  $(458)  $– 

 

The weighted average remaining discount rate is 5.25% for the Company’s operating and financing leases. The weighted average remaining lease term is 3.6 years for financing lease and 3.1 years for operating leases.

 

In October 2016, the Company entered into lease agreement for approximately 200 square feet of office space in Cambridge, Massachusetts. The lease, with current monthly payments of $2,942 per month, commenced on October 24, 2016. Since the lease is month to month and can be cancelled with a 30-day notice, the future lease payments are not included in the Company’s lease accounting under ASC Topic 842.

 

In December 2022, the Company entered into a lease agreement for a tool in Tempe, Arizona. The term of this lease is for six months beginning on January 1, 2023 with an option to extend the lease for an additional six months. The initial lease terms are for $96,000 per month. If the option to extend the lease is exercised prior to March 31, 2023, the remaining lease payments will be reduced to an average of $87,000 over the twelve months. Since the lease and extension are not for more than one year, the future lease payments are not included in the Company’s lease accounting under ASC Topic 842.