5. Lease liabilities

(a) ASU

2016-02

Leases disclosures

The Company has a lease agreement for approximately 10,946 square feet of office space in Canada which commenced on November 1, 2016 and expire

October 31, 2021, with the option to extend the lease to October 31, 2026. On December 22, 2016, the Company signed a lease agreement for an additional 2,500 square feet of office space in Canada. The lease for the additional 2,500 square feet expire

d on

June 30, 2019. In addition to the basic rent, the Company is obligated to pay for taxes, operating costs, utilities, additional services and other amounts.

As part of the transaction with Former Neoleukin, the Company assumed a finance lease liability for laboratory equipment. The Company is obligated to make five annual payments of $59,632 for an aggregate purchase price of $298,160. All rights and title will transfer to the Company upon receipt of the final payment.

The components of the lease expense were as follows:


(in thousands)	THREE MONTHS ENDED SEPTEMBER 30, 2019		NINE MONTHS ENDED SEPTEMBER 30, 2019
Finance lease cost
Amortization of right-of-use asset	$	7	$	7
Interest on lease liabilities		—		—
Operating lease cost		24		86
Variable lease cost		31		121

Total net lease cost	$	62	$	214

Supplemental cash flow information related to leases was as follows:


(in thousands)	THREE MONTHS ENDED SEPTEMBER 30, 2019		NINE MONTHS ENDED SEPTEMBER 30, 2019
Cash paid for amounts included in the measurement of operating lease liabilities	$	50	$	146
Cash paid for amounts included in the measurement of finance lease liabilities		2		7
Operating lease liabilities arising from obtaining right-of-use assets		—		515

The calculation of the present value of the operating lease payments utilized a discount rate of 6% and did not include the option to extend the lease to October 31, 2026. The calculation of the present value of the finance lease payments utilized a discount rate of 7.11%.

At September 30, 2019, the future payments under the Company’s operating and finance lease liabilities were as follows:


(in thousands)	FINANCE LEASE			OPERATING LEASE
December 31, 2019	$	2		$	51
December 31, 2020		67			207
December 31, 2021		60			172
December 31, 2022		60			—
December 31, 2023		59			—

Total undiscounted lease payments		248			430
Less: imputed interest		(37	)		(25	)

Total lease liabilities		211			405
Less: current portion		(65	)		(200	)

Non-current lease liabilities – September 30, 2019	$	146		$	205

On September 26, 2019, the Company entered into a lease agreement for the lease of approximately 6,272 square feet of office space in Seattle, Washington, for the Company’s principal executive offices, a laboratory for research and development and related uses. The lease was effective on September 23, 2019, commenced on October 1, 2019 and expires on September 30, 2021, unless terminated earlier. The Company will be obligated to pay approximately $358,000 in annual basic rent for the first year of the lease, and approximately $366,000 in the second year. The Company will also be responsible for the payment of additional rent to cover the Company’s share of the annual operating and tax expenses and utilities costs for the building.

(b) Disclosures related to periods prior to adoption of ASU

2016-02

Leases

The lease agreements contain scheduled rent increases, rent holidays and tenant improvement allowance. As such, the Company has recorded a deferred rent liability of $0.3 million as at December 31, 2018.

The minimum lease payments under the

non-cancelable

operating leases as at December 31, 2018 are payable in the following amounts over the following years.


	2019		2020		2021		Total
Operating lease obligations	$	362	$	336	$	280	$	978

	$	362	$	336	$	280	$	978

During the three and nine months ended September 30, 2018, the Company incurred operating lease costs of $0.3 million and $0.7 million, respectively.