Leases, Commitments and Contingencies

Leases

The Company leases certain lab space, office space, and equipment. Leases with an initial term of

months or less are

not

recorded on the Balance Sheet; the Company recognizes lease expense for these leases on a straight-line basis over the lease term. For lease agreements entered into or reassessed after the adoption of Topic

842,

the Company combines lease and non-lease components, if any. Most leases include

one

or more options to renew. The exercise of lease renewal options is at the Company’s sole discretion. Certain leases also include options to purchase the leased property. Consistent with past practice and current intent, the Company has recognized all such purchase options as part of its right-of-use assets and lease liabilities. The depreciable life of assets and leasehold improvements are limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise. The Company’s lease agreements do

not

contain any material residual value guarantees or material restrictive covenants.

The Company conducts its operations from leased facilities in Morrisville, North Carolina. As of

December 31, 2019,

the Company’s amended leases for its primary building is for usage of approximately

45,000

square feet of space expiring

October 31, 2026.

The leases are for general office, laboratory, research and development and light manufacturing space. The lease agreements require the Company to pay property taxes, insurance, common area expenses and maintenance costs. In

November 2018,

the Company amended the lease of its primary building to expand by

8,264

additional square footage expiring

October 31, 2026

in exchange for terminating the Company’s other lease with the same landlord for

4,400

noncontiguous square feet. A tenant allowance of approximately

$1.0

million was also made available for use to help fund the build out related to the expansion of the primary building lease. The incremental rent over the terminated lease for the

first

months of this lease expansion amounts to

$0.1

million, subject to lease escalation in subsequent periods. In

June 2019,

the Company signed a commitment to incur construction costs of up to

$3.1

million related to the leasehold improvements for this lease expansion, against which the tenant allowance will be applied. The leasehold improvements were substantially completed in

2019

and the Company took occupancy of the additional square footage in

2019.

The total construction costs incurred in

2019

approximated

$2.8

million and the remaining estimated costs to be incurred as of

December 31, 2019

not

expected to be material.

The Company leases specialized lab equipment under finance leases. The related right-of-use assets are amortized on a straight-line basis over the lesser of the lease term or the estimated useful life of the asset.

The CSC Financing (see Note

) has a term of

three

years with equal monthly payments. The CSC Financing is secured by a lien on the related build-to-suit equipment and includes an option to purchase the build-to-suit equipment at maturity at an amount equal to the lesser of fair market value or

23%

of the initial financed amount. The right-of-use assets related to finance leases net of amortization is

$1,981,002

as of

December

31,

2019

and is included in lab equipment, build-to-suit equipment, computer equipment and leasehold improvements within property, plant and equipment in the accompanying balance sheet (see Note

). The Company does

not

have access to certain inputs used by its lessors to calculate the rate implicit in its finance leases. As such, the Company utilizes its estimated incremental borrowing rate for the discount rate applied to its finance leases. The incremental borrowing rate used on finance leases was

7.5%.

The Company’s lease cost is reflected in the accompanying Statements of Operations and Comprehensive Loss as follows:

		Year Ended
	Classification	December 31, 2019
Operating lease cost	General and administrative	$	884,597
Finance lease cost:
Amortization of lease assets	General and administrative		1,316,924
Interest on lease liabilities	Interest expense		190,687
Lease cost		$	2,392,208

Rent expense under prior lease accounting rules (Topic

840

) was

$953,733

during the year ended

December 31, 2018.

The weighted average remaining lease term and discount rates as of

December

31,

2019

were as follows:

Weighted average remaining lease term (years):
Operating leases	6.8
Finance leases	1.6
Weighted average discount rate:
Operating leases	10.3	%
Finance leases	7.7	%

The discount rate for operating leases was estimated based upon market rates of collateralized loan obligations of comparable companies on comparable terms.

The future minimum lease payments as of

December

31,

2019

were as follows:

	Operating			Finance
Year ending December 31:	Leases			Leases			Total
2020	$	1,172,759		$	1,366,026		$	2,538,785
2021		1,207,708			814,360			2,022,068
2022		1,243,934			260,857			1,504,791
2023		1,283,253			—			1,283,253
2024		1,316,540			—			1,316,540
Thereafter		2,513,729			—			2,513,729
Total minimum lease payments		8,737,923			2,441,243			11,179,166
Less: Interest		(2,500,562	)		(140,267	)		(2,640,829	)
Present value of lease liabilities	$	6,237,361		$	2,300,976		$	8,538,337

As previously reported in the Company’s Annual Report on Form

-K for the year ended

December 31, 2018

and under legacy lease accounting (ASC

840

), future minimum lease payments under non-cancellable leases as of

December 31, 2018

are as follows:

	Operating		Finance
	Leases		Leases
2019	$	1,077,532	$	464,797
2020		1,168,710		354,739
2021		1,203,658		33,774
2022		1,239,885		—
2023		1,276,356		—
Thereafter		3,818,795		—
Total minimum lease payments	$	9,784,936		853,310
Less: Interest				(24,525	)
Present value of lease liabilities			$	828,785

Other

Commitments

March

2012,

the Company entered into an agreement, as amended, with Chasm Technologies, Inc. for manufacturing consulting services related to the Company’s manufacturing capabilities during the term of the agreement. As future contingent consideration under the agreement, the Company agreed to pay

$400,000

related to the timing of the Company’s

first

Phase

clinical trial which commenced site initiation in

December 2017.

The consideration of

$400,000

is comprised of initial consideration of

$20,000

paid in

2017,

$80,000

to be paid upon

first

dosing of the

first

patient in the Phase

clinical trial which occurred in

2018,

and

$300,000

due

later than

December

31,

2018,

which was paid in

2018.

In addition, the Company also agreed to pay future contingent royalties on net sales totaling

more than

$1,500,000.

Contingencies

The Company from time-to-time is subject to claims and litigation in the normal course of business,

none

of which the Company believes represent a risk of material loss or exposure.