Effective January 1, 2019, the Company adopted US GAAP accounting rules in ASC Topic 842, Leases (ASC 842), using the modified retrospective method. The Company elected to follow the package of practical expedients provided under the transition guidance within ASC 842, and accordingly, did not reassess whether any expired or existing contracts are or contain leases, did not reassess expired or existing leases, and did not reassess initial direct costs for any existing leases. Upon adoption, the Company recorded an operating lease right-of-use asset and an operating lease liability on the balance sheet. In addition, assets under equipment leases previously classified as capital leases within Fixed Assets on the Company’s balance sheet were reclassified to finance lease right-of-use assets upon adoption of the guidance. Right-of-use assets and obligations were recognized based on the present value of remaining lease payments over the lease term. As the Company’s operating lease does not provide an implicit rate, an estimated incremental borrowing rate was used based on the information available at the adoption date in determining the present value of lease payments. Operating lease expense is recognized on a straight-line basis over the lease term. Variable lease costs such as common area costs and other operating costs are expensed as incurred. Leases with an initial term of 12 months or less are not recorded on the balance sheet.

The Company leases certain laboratory equipment under arrangements previously accounted for as capital leases, classified on the Company’s balance sheet as fixed assets and related lease liabilities and depreciated on a straight-line basis over the lease term. Upon adoption of ASC 842, leased equipment previously classified as fixed assets totaling $1.4 million in net book value were reclassified to lease right-of-use assets in accordance with the guidance. The equipment under finance leases is depreciated on a straight-line basis over periods ranging from approximately 5 to 7 years. The total gross value of equipment capitalized under such lease arrangements was approximately $6.0 at December 31, 2021 and March 31, 2022, respectively. Total accumulated depreciation related to equipment under finance leases was approximately $3.2 million and $3.4 million at December 31, 2021 and March 31, 2022, respectively. Total depreciation expense related to equipment under finance leases during the three months ended March 31, 2021, and 2022 was approximately $172,000 and $225,000, respectively.

During the three months ended March 31, 2021, the Company entered into finance leases for a total capitalized amount of $894,000 for four pieces of equipment. Under the terms of the financing agreements, which were accounted for as finance lease transactions, the principal balance plus interest for the equipment are to be paid in installments ranging from 36 to 60 monthly installments of $21,330 totaling approximately $1.1 million through March 2026. During the three months ended March 31, 2022, the Company did not enter into any additional financed leases obligations

The Company leases its primary laboratory and office facilities in San Diego, California. In accordance with the ASC 842 guidance, the facility lease is classified as an operating lease. From its inception until December 2020, the Company’s primary facilities were located at 5810 Nancy Ridge Road in San Diego, California (Nancy Ridge Facility) and subject to a lease agreement dated March 31, 2004. The average monthly cash payment for the operating lease was approximately $120,000 per month, and the lease term expired on July 31, 2020, but was extended as stated below. The Company recorded a lease right-of-use asset and lease liability of $1.9 million and $2.2 million, respectively, as of January 1, 2019, based on present value of payments and an incremental borrowing rate of 4.5%.

On June 5, 2020, the Company entered into a fifth amendment (the “Amendment”) to its lease agreement relating to the Nancy Ridge Facility. Pursuant to the Amendment, the expiration date of the lease was extended from July 31, 2020 to November 30, 2020. The monthly base rent during the extended term was the then-current monthly rate paid by the Company. The Company agreed to pay additional rent and all other charges as set forth in the lease through the expiration date. Pursuant to the extension of the expiration date of the lease, the Company recorded an additional lease right-of-use asset and lease liability of $482,000. In order to allow the Company adequate time to move its operations to its new facility, the Company entered into an additional extension related to the facility extending the lease until December 11, 2020 at the prorated amount of the then-current rent.

On June 1, 2020, the Company entered into a lease for a 39,000 square foot headquarters, manufacturing and laboratory facility at 9955 Mesa Rim Road in San Diego, California. The lease commenced on December 1, 2020 and is for a term of 127 months from the commencement date. The lease includes a rent abatement period of seven months, from January 2021 through July of 2021, during which period the Company is exempted from paying the amount of base rent of $111,000. In addition, the lease stipulates an additional two months of lease abatement period in the event that the property is sold within the first six months of the initial lease period. In March 2021, the Company was notified that the original landlord has sold the building, hence the Company is eligible for an additional two months of rent abatement period. In addition, the landlord agreed to pay for certain preapproved leasehold improvement costs through a one-time leasehold improvement allowance of approximately $1.6 million. The amount of additional leasehold improvement allowance of approximately $1.6 million is to be paid back to the landlord during the term of the lease by the Company, amortized at an agreed upon annual rate of 7% as an additional rent payment of approximately $18,000 per month. The average monthly cash payment including payment for the additional leasehold improvement allowance for the lease is approximately $140,000 per month with initial monthly lease payments of $128,000 per month. The Company recorded a lease right-of-use asset and lease liability of $9.8 million and $9.8 million, respectively, as of December 31, 2020, based on the present value of payments and an incremental borrowing rate of 12%. As the Company’s lease did not provide an implicit rate, the Company estimated the incremental borrowing rate based on the credit quality of the Company and by comparing interest rates available in the market for similar borrowings. The Company recorded $1.6 million in other current assets related to reimbursable leasehold improvement costs incurred as of December 31, 2020. The landlord reimbursed the Company $1.8 million during the year ended December 31, 2021.

In addition, the Company reviews agreements at inception to determine if they include a lease, and when they do, uses its incremental borrowing rate or implicit interest rate to determine the present value of the future lease payments.

The following schedule sets forth the components of right-of-use lease assets as of December 31, 2021 and March 31, 2022 as follows:

	December 31,		March 31,
	2021		2022
Lease right-of-use assets:
Operating	$	9,026	$	8,892
Finance		2,842		2,617
Total	$	11,868	$	11,509

The following schedule sets forth the current portion of operating and finance lease liabilities as of December 31, 2021 and March 31, 2022:

	December 31,		March 31,
	2021		2022
Current portion of lease liability:
Operating	$	426	$	449
Finance		1,083		1,021
Total	$	1,509	$	1,470

The following schedule sets forth the long-term portion of operating and finance lease liabilities as of December 31, 2021 and March 31, 2022:

	December 31,		March 31,
	2021		2022
Long-term portion of lease liability:
Operating	$	9,736	$	9,598
Finance		1,428		1,221
Total	$	11,164	$	10,819

The following schedule represents the components of lease expense for the three months ended March 31, 2021 and 2022:

	For the Three Months Ended March 31,
	2021		2022
Lease cost
Finance lease cost
Amortization of right-of-use assets	$	172	$	225
Interest on lease liabilities		65		61
Operating lease cost		415		415
Total	$	652	$	701

The following schedule sets forth the remaining future minimum lease payments outstanding under finance and operating leases, as well as corresponding remaining sales tax and maintenance obligation payments that are expensed as incurred and due within each respective year ending December 31, as well as the present value of the total amount of the remaining minimum lease payments as of March 31, 2022:

	Finance					Operating
	Minimum			Maintenance and		Minimum
	Lease			Sales Tax Obligation		Lease
	Payments			Payments		Payments
2022 (Remaining 9 months)	$	819		$	92	$	1,191
2023	$	963		$	106	$	1,629
2024		534			29		1,672
2025		185			3		1,715
2026		15			-		1,762
Thereafter		-			-		8,518
Total payments		2,516			230		16,487
Less amount representing interest		(274	)		—		(6,440	)
Present value of payments	$	2,242		$	230	$	10,047

The following schedule sets forth supplemental cash flow information related to operating and finance leases as of March 31, 2021 and March 31, 2022:

	For the Three Months Ended March 31,
	2021		2022
Other information
Operating cash flows from finance leases	$	65	$	61
Operating cash flows from operating leases	$	53	$	396
Financing cash flows from finance leases	$	321	$	268

The aggregate weighted average remaining lease term was 2.5 years on finance leases and 9.25 years on operating leases as of March 31, 2022. The aggregate weighted average discount rate was 19.0% on finance leases and 12.0% on operating leases as of March 31, 2022. During the three months ended March 31, 2022, there were no additional exchanges of right of use assets for financed lease liabilities.