Leases

12 Months Ended

Dec. 31, 2021

Leases

Leases

13. Leases

The Company accounts for its leases under ASC 842. The Company has determined that its leases for office and laboratory space without optional terms or variable components, are operating leases.

The Company conducts its operations from leased facilities in Morrisville, North Carolina, San Antonio, Texas and New Brunswick, New Jersey, the leases for which will expire in 2027, 2023 and 2022. The leases are for general office space and lab space and require the Company to pay property taxes, insurance, common area expenses and maintenance costs.

In June 2021, the Company entered into a lease agreement with Durham KTP Tech 7, LLC, to lease a 15,996 square foot facility in Morrisville, North Carolina to expand its research and development activities. The lease has a term of eight years following the commencement date and provides the Company the option to extend the lease term for one five year term. It is subject to fixed rate escalation increases and also provides up to $2.4 million for tenant improvements. As the lease commencement date under ASC 842 had not occurred as of December 31, 2021, the Company has not recorded an operating lease ROU asset or lease liability for this lease in the accompanying consolidated balance sheets. The initial estimate of the minimum amount of undiscounted lease payments due under this lease is $4.66 million. Further, the tabular disclosure of minimum lease payments below does not include payments due under this lease.

In October 2021, Scorpion entered into a lease agreement with Merchants Ice II, LLC, to lease a 20,144 square foot facility in San Antonio, TX for general office, laboratory, research, analytical, and/or biomanufacturing purposes. Merchants Ice II, LLC is a nonprofit entity investing in the building with the intention to encourage development of emerging technologies. As a result, investments made to the building could generate tax incentives under the New Market Tax Credit (“NMTC”) program. Scorpion agreed that all investments and expenditures qualifying under the NMTC (i.e., certain equipment and building improvements) would be purchased by the Merchants Ice II, LLC to generate the largest possible tax incentive and Scorpion would reimburse Merchant Ice, LLC for these payments. To date, Scorpion has reimbursed Merchant Ice, LLC $12.2 million which is shown in “Other assets” on the consolidated balance sheets. Upon lease commencement, these assets will be classified as a right-of-use asset. The lease has a term of fifteen years following the commencement date and provides Scorpion the option to extend the lease term for one fifteen-year term, and one subsequent ten year term upon expiration of the first extended term. It is subject to fixed rate escalation increases and also provides up to $2.4 million for tenant improvements. As the lease had not commenced as of December 31, 2021, Scorpion has not recorded a right-of-use asset or lease liability for this lease in the accompanying consolidated balance sheets. The initial estimate of the minimum amount of undiscounted lease payments due under this lease is $11.1 million.

Total cash paid for operating leases during the year ended December 31, 2021 and 2020 was $0.4 million and $0.3 million and is included within cash flows from operating activities within the consolidated statement of cash flows.

The Company leases furniture and 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 effective interest rate was 5.52% and 6.17% for the years ended December 31, 2021 and 2020.

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

	For the Year Ended December 31, 2021		For the Year Ended December 31, 2020
Operating lease cost	$	474,135	$	435,024
Finance lease cost
Amortization of lease assets		185,171		114,201
Interest on lease liabilities		21,970		17,972
Total finance lease cost	$	207,141	$	132,173

The weighted average remaining lease term and incremental borrowing rate as of December 31, 2021 and 2020 were as follows:

	For the Year Ended December 31, 2021			For the Year Ended December 31, 2020
Weighted average remaining lease term
Operating leases		5.0	years		5.9	years
Finance leases		2.0	years		2.0	years
Weighted average discount rate
Operating leases		6.32	%		6.49	%
Finance leases		5.30	%		6.17	%

Maturities of operating and finance lease liabilities as of December 31, 2021 were as follows:

	Operating Leases		Finance Leases		Total
2022	$	426,539		281,042		707,581
2023		292,921		135,632		428,553
2024		231,503		131,256		362,759
2025		238,452		-		238,452
2026		245,607		-		245,607
2027		209,214		-		209,214
Thereafter		-		-		-
Total minimum lease payments		1,644,236		547,930		2,192,166
Less: imputed interest		(233,037)		(31,927)		(264,964)
Present value of lease liabilities	$	1,411,199	$	516,003	$	1,927,202

Maturities of operating and finance lease liabilities as of December 31, 2020 were as follows:

	Operating Leases		Finance Leases		Total
2021	$	369,995	$	120,684	$	490,679
2022		360,839		155,694		516,533
2023		244,973		10,284		255,257
2024		231,503		-		231,503
2025		238,452		-		238,452
Thereafter		454,820		-		454,820
Total minimum lease payments		1,900,582		286,662		2,187,244
Less: imputed interest		(320,193)		(18,295)		(338,488)
Present value of lease liabilities	$	1,580,389	$	268,367	$	1,848,756