Leases

6 Months Ended

Jun. 30, 2022

Leases

Leases

13. Leases

The Company accounts for its leases under ASC 842.

The Company conducts its operations from leased facilities in Morrisville, North Carolina; San Antonio, Texas; Parsippany, New Jersey and North Brunswick, New Jersey. The North Carolina lease will expire in 2027, the Texas lease will expire in 2023, the Parsippany lease will expire in 2024 and the New Brunswick leases will expire in 2023. 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 had not commenced as of June 30, 2022, the Company has not recorded an operating lease right-of-use (“ROU”) asset or lease liability for this lease in the accompanying condensed consolidated balance sheets. The initial estimate of the minimum amount of undiscounted lease payments due under this lease is $4.7 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 by both Merchants Ice II, LLC and Scorpion into the building may qualify and share tax credits 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 Merchants Ice II, LLC to generate the largest possible tax incentive and Scorpion would reimburse Merchants Ice II, LLC for these payments. As of June 30, 2022, and prior to the execution of the lease agreement, Scorpion has reimbursed Merchants Ice II, LLC $20.9, 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 June 30, 2022, Scorpion has not recorded a right-of-use asset or lease liability for this lease in the accompanying condensed consolidated balance sheets. The initial estimate of the minimum amount of undiscounted lease payments due under this lease is $11.1 million. Further, the tabular disclosure of minimum lease payments below does not include payments due under this lease.

Total cash paid for operating leases during the six months ended June 30, 2022 was $0.2 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 is 5.27%.

The Company’s lease cost is reflected in the accompanying statements of operations and comprehensive loss within the general and administrative and research and development balances as follows:

	For the Three Months Ended June 30, 2022		For the Six Months Ended June 30, 2022
Operating lease cost	$	191,446	$	336,003
Finance lease cost
Amortization of lease assets		62,861		125,721
Interest on lease liabilities		5,553		11,870
Total finance lease cost	$	68,414	$	137,591

The weighted average remaining lease term and incremental borrowing rate as of June 30, 2022 were as follows:

	For the Six Months Ended June 30, 2022			For the Six Months Ended June 30, 2021
Weighted average remaining lease term
Operating leases		4.4	years		5.7	years
Finance leases		1.9	years		1.8	years
Weighted average incremental borrowing rate
Operating leases		5.34	%		6.47	%
Finance leases		5.27	%		6.00	%

Maturities of operating and finance lease liabilities as of June 30, 2022 were as follows:

	Operating Leases		Finance Leases		Total
Years Ending December 31, 2022 (excluding the three months ended June 30, 2022)	$	357,524		158,026		515,550
2023		558,216		135,632		693,848
2024		403,966		131,256		535,222
2025		315,132		-		315,132
2026		245,606		-		245,606
2027		209,214		-		209,214
Total minimum lease payments		2,089,658		424,914		2,514,572
Less: imputed interest		(210,691)		(20,056)		(230,747)
Present value of lease liabilities	$	1,878,967	$	404,858	$	2,283,825