The Company has an operating lease for lab space from Sanford Health, under a lease that started in June 2014 and initially ended in June 2019, at which time the lease was extended through August 2024. This lease can be terminated with one-year advance written notice. This lease was amended again in October 2022 to reduce the Company’s leased area to 21,014 square feet. Additionally, pursuant to the amendment in October 2022, the Company and Sanford Health agreed for the period of October 2022 to September 2023, the Company’s obligation to pay the Annual Rent shall be abated and not required to be paid when normally due (the “Abated Rent”). In exchange for the Abated Rent, effective October 1, 2022, the Company issued Sanford Health an 8% unsecured, convertible promissory note (see Note 9, Notes Payable for further discussion). The October 2022 amendment was accounted for as a lease modification under ASC 842 - Leases and the right-of-use asset and lease liability were remeasured at the modification date of October 1, 2022. The October 2022 lease amendment reduced the lease payment to approximately $45 thousand per month for the remainder of 2023 and approximately $46 thousand per month through 2024. The lease does not provide an implicit rate, and, therefore, the Company used an IBR of 6.92% as the discount rate when measuring the operating lease liability. The operating lease does not include an option to extend beyond the life of the current term. The Company estimated the IBR based upon comparing interest rates available in the market for similar borrowings and the credit quality of the Company.

The Company entered into a lease for office, laboratory, and warehouse space in November 2020, which was amended in July 2022 to add additional administrative and lab space. This amended lease has a 3-year term, with options to extend for 3 additional periods of 3 years each. The options were not included in the right of use calculation as it is unclear as to whether or not the location will meet the Company’s requirements beyond the next three years. The July 2022 amendment was accounted for as a separate contract under ASC 842 – Leases. The lease costs are $36 thousand and $3 thousand per month for the original leased space on November 2020 and the amendment on July 2022, respectively. The Company used an IBR of 4.69% and 6.60% as the discount rate when measuring the operating lease liability for the original leased space on November 2022 and the amended on July 2022, respectively. The Company estimated the IBR based upon comparing interest rates available in the market for similar borrowings and the credit quality of the Company.

The lease agreements do not require material variable lease payments, residual value guarantees or restrictive covenants.

The amortizable lives of the operating lease assets are limited by their expected lease terms. The amortizable lives of the finance lease assets are limited by their expected lives, as the Company intends to exercise the purchase options at the end of the leases. The following is the estimated useful lives of the finance lease assets:

The Company’s weighted-average remaining lease term and weighted-average discount rate for operating and finance leases as of September 30, 2023 are:


	Operating			Finance
Weighted-average remaining lease term	0.85			15.17
Weighted-average discount rate		6.77	%		7.72	%

The table below reconciles the undiscounted future minimum lease payments under non-cancelable leases with terms of more than one year to the total lease liabilities recognized on the condensed balance sheet as of September 30, 2023:


	Operating			Finance
2023 - remaining	$	174,721		$	100,374
2024		368,320			401,496
2025		—			401,496
2026		—			401,496
2027		—			401,496
Thereafter		—			4,382,998
Undiscounted future minimum lease payments		543,041			6,089,356
Less: Amount representing interest payments		(14,263	)		(2,507,425	)
Total lease liabilities		528,778			3,581,931
Less current portion		(528,778	)		(129,489	)
Noncurrent lease liabilities	$	—		$	3,452,442

Operating lease expense was approximately $246 thousand and $304 thousand, respectively, for the three months ended September 30, 2023 and 2022, and $738 thousand and $889 thousand, respectively, for the nine months ended September 30, 2023 and 2022. Operating lease costs are included within research and development expenses on the condensed statements of operations.

Finance lease costs for the three months ended September 30, 2023 and 2022 included approximately $22 thousand and $25 thousand, respectively, in right-of-use asset amortization and approximately $70 thousand and $71 thousand, respectively, of interest expense. Finance lease costs for the nine months ended September 30, 2023 and 2022 included approximately $70 thousand and $98 thousand, respectively, in right-of-use asset amortization and approximately $210 thousand and $214 thousand, respectively, of interest expense. Finance lease costs are included within research and development expenses on the condensed statements of operations.

Cash payments under operating and finance leases were approximately $118 thousand and $100 thousand, respectively, for the three months ended September 30, 2023. Cash payments under operating and finance leases were approximately $354 thousand and $306 thousand, respectively, for the nine months ended September 30, 2023. Cash payments under operating and finance leases were approximately $309 thousand and $103 thousand, respectively, for the three months ended September 30, 2022. Cash payments under operating and finance leases were approximately $930 thousand and $334 thousand, respectively, for the nine months ended September 30, 2022.

Short-term lease expense recognized in the three and nine months ended September 30, 2023 and 2022, was not material.