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Leases

9 Months Ended

Sep. 30, 2021

7. Leases

We adopted ASC 842, Leases (“ASC 842”) on January 1, 2019 using the modified retrospective approach.

In April 2020, we terminated an existing operating lease for office space. At the time of termination, we removed the remaining right-of-use asset of $0.3 million, lease liability of $0.3 million, and recognized a gain of $0.1 million. Further, in April 2020, we commenced a new operating lease. At the time of commencement, we recorded the right-of-use asset value of $0.4 million, leasehold improvements of $0.4 million, and a lease liability of $0.8 million. The net effect of the change in leases being an increase in right-of-use assets of $0.1 million, an increase in leasehold improvements of $0.5 million, an increase in lease liability of $0.4 million, and a gain on termination of $0.1 million.

In August 2021, we entered into an operating lease for laboratory space. At the time of commencement, we recorded a right-of-use asset value of $2.4 million and a lease liability of $2.4 million, net of a lease incentive of $1.0 million. The lease incentive represents an allowance from the lessor for facility alterations. As the lease incentive is payable based on events within our control and are deemed reasonably certain to occur, we recorded the lease incentive as a reduction of the right-of-use asset and lease liability at the lease commencement. As of September 30, 2021, we incurred $0.1 million of costs related to the lease incentive which we recorded as construction in progress, with a corresponding increase to the lease liability, and the construction in progress will be capitalized as leasehold improvements when the facility is placed into service. The lease has an initial ten-year term and provides us the right and option to extend or renew for two periods of five years each. In accordance with ASC 842, the payments to be made in option periods have not been recognized as part of the right-of-use asset or lease liability because we do not assess the exercise of the option to be reasonably certain.

Additionally, in August 2021, we entered into an operating lease for laboratory space that will replace a previous operating lease for the same facility. The commencement of the new lease and the termination of the previous lease will be effective as of December 1, 2021, and had no impact on the condensed consolidated financial statements for the three and nine months ended September 30, 2021.

We have noncancelable operating lease arrangements primarily for office and laboratory space. We also have noncancelable finance leases for certain laboratory equipment. The maturity analysis of finance and operating lease liabilities as of September 30, 2021 are as follows:

(in thousands)	Finance Leases			Operating Leases
2022	$	43			870
2023		136			960
2024		82			982
2025		20			1,007
2026		-			1,031
Thereafter		-			2,887
Total undiscounted cash flows		281			7,737
Less amount representing interest/discounting		(3	)		(2,507	)
Present value of future lease payments		278			5,230
Less future lease incentives		-			(900	)
Less lease obligations, current portion		(153	)		(262	)
Lease obligations – long term portion	$	125		$	4,068

We expect that, in the normal course of business, the existing leases will be renewed or replaced by similar leases.

Finance Leases

Assets recorded under finance lease obligations and included with property and equipment as of September 30, 2021 and December 31, 2020 are summarized as follows:

	September 30,			December 31,
(in thousands)	2021			2020
Laboratory equipment	$	1,148		$	920
Furniture and fixtures		46			46
Work in process		-			228
Total		1,194			1,194
Less accumulated depreciation		(629	)		(593	)
Net	$	565		$	601

As of September 30, 2021, our finance lease obligations had a weighted-average interest rate of 8.6% and had a weighted-average remaining term of 2.2 years. As of December 31, 2020, our finance lease obligations had a weighted-average interest rate of 8.1% and had a weighted-average remaining term of 2.7 years.

Operating Leases

Our balance of right-of-use assets on the face of the balance sheet pertain to operating leases. As of September 30, 2021, our operating lease obligations had a weighted-average discount rate of 9.6% and had a weighted-average remaining term of 8.3 years. As of December 31, 2020, our operating lease obligations had a weighted-average discount rate of 9.6% and a weighted-average remaining term of 6.3 years.

Components of Lease Cost

The components of finance and operating lease costs for the three and nine months ended September 30, 2021 and 2020 were as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands)	2021		2020		2021		2020
Finance lease costs:
Amortization	$	37	$	41	$	110	$	137
Interest on lease liabilities		6		9		21		30
Operating lease costs		107		95		247		308
Short-term lease costs		98		66		214		203
Variable lease costs		32		22		71		70
Total lease costs	$	280	$	233	$	663	$	748

Supplemental Cash Flow Information

(in thousands)	2021			2020
Operating cash flows from operating leases	$	(533	)	$	(497	)
Operating cash flows from finance leases	$	(21	)	$	(30	)
Financing cash flows from finance leases	$	(117	)	$	(156	)