Lease liabilities

12 Months Ended

Dec. 31, 2019

7. Lease liabilities

(a) ASU

2016-02

Leases disclosures

The Company has a lease agreement for 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 October 31, 2021, unless terminated earlier. The Company is also 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.

The Company has a lease agreement for approximately 10,946 square feet of office space in Canada

which commenced on November 1, 2016 and expires 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 expired 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 for an aggregate purchase price of $0.3

million

All rights and title will transfer to the Company upon receipt of the final payment.

As of December 31, 2019, the Company’s operating lease right of use asset was $0.8 million and its finance lease right of use asset was $0.3 million.

The components of the lease expense were as follows:


(in thousands)	YEAR ENDED DECEMBER 31, 2019
Finance lease cost
Amortization of right-of-use asset	$	19
Interest on lease liabilities		—
Operating lease cost		197
Short term lease cost		105
Variable lease cost		181

Total net lease cost	$	502

Supplemental balance sheet information related to leases is as follows:


		YEAR ENDED DECEMBER 31, 2019
Weighted average remaining lease term—finance leases		3.33 years
Weighted average remaining lease term—operating leases		1.83 years
Weighted average discount rate—finance leases		7.11%
Weighted average discount rate—operating leases		5.37%

Supplemental cash flow information related to leases was as follows:


(in thousands)	YEAR ENDED DECEMBER 31, 2019
Cash paid for amounts included in the measurement of operating lease liabilities	$	236
Cash paid for amounts included in the measurement of finance lease liabilities		9
Operating lease liabilities arising from obtaining right-of-use assets		1,182

The calculation of the present value of the operating lease payments for the Vancouver lease did not include the option to extend the lease to October 31, 2026.

At December 31, 2019, the future payments under the Company’s operating and finance lease liabilities were as follows:


(in thousands)	FINANCE LEASE			OPERATING LEASE
December 31, 2020	$	66		$	570
December 31, 2021		60			481
December 31, 2022		60			—
December 31, 2023		59			—

Total undiscounted lease payments		245			1,051
Less: imputed interest		(37	)		(48	)

Total lease liabilities		208			1,003
Less: current portion		(62	)		(556	)

Non-current lease liabilities — December 31, 2019	$	146		$	447

On December 23, 2019, the Company entered into a lease agreement for the lease of approximately 33,300 square feet of office space in Seattle, Washington, for the Company’s future principal executive offices, a laboratory for research and development and related uses. The lease was effective on December 23, 2019, rent

obligations commence

on December 1, 2020 and

the lease

expires on December 1, 2028, unless terminated earlier. The Company will be obligated to pay approximately $2.0 million per annum in annual basic rent for the first year of the lease and will increase by 2.5% per annum over the term of the lease. 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 ASC 842 Leases

Prior to the adoption of ASC 842, and pursuant to the legacy guidance within ASC 840, the Company recorded rent expense on a straight-line basis through the end of the lease term. Scheduled rent increases, rent holidays and tenant improvement allowance were included in deferred rent and recognized as a reduction in deferred rent over the term of the lease. As at December 31, 2018, the Company recorded a deferred rent liability

of $0.3 million.

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 years ended December 31, 2018 and 2017, the Company incurred operating lease costs of $0.7 million and $0.7 million, respectively.