Leases

9 Months Ended

Sep. 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 2037, the Parsippany lease will expire in 2024 and the New Brunswick leases will expire in 2023. The leases are for general office space, manufacturing 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 September 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. The lease officially commenced on September 15, 2022. As of September 30, 2022, Scorpion has reimbursed Merchants Ice II, LLC $24.3 million. Based on the ASC 842 guidance, the Company has capitalized $13.2 million of the reimbursements as lab equipment, expensed $0.9 million as supplies and facilities, and $10.2 million has been included in the finance lease 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. Scorpion recorded a finance lease right-of-use asset of $16.1 million and lease liability of $6.1 million for this lease in the accompanying condensed consolidated balance sheets.

Total cash paid for operating leases during the nine months ended September 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 6.65%.

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 September 30, 2022		For the Nine Months Ended September 30, 2022
Operating lease cost	$	195,368	$	531,371
Finance lease cost
Amortization of lease assets		170,492		296,214
Interest on lease liabilities		44,903		56,772
Total finance lease cost	$	215,395	$	352,986

The weighted average remaining lease term and incremental borrowing rate as of September 30, 2022 and 2021 were as follows:

	For the Nine Months Ended September 30, 2022			For the Nine Months Ended September 30, 2021
Weighted average remaining lease term
Operating leases		4.2	years		5.6	years
Finance leases		9.5	years		2.1	years
Weighted average incremental borrowing rate
Operating leases		5.25	%		6.44	%
Finance leases		6.65	%		5.63	%

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

	Operating Leases		Finance Leases		Total
Years Ending December 31, 2022 (excluding the nine months ended September 30, 2022)	$	179,752		245,867		425,619
2023		558,216		700,292		1,258,508
2024		403,966		812,383		1,216,349
2025		315,132		715,782		1,030,914
2026		245,606		595,309		840,915
2027		209,214		615,269		824,483
Thereafter		-		7,716,135		7,716,135
Total minimum lease payments		1,911,886		11,401,037		13,312,923
Less: imputed interest		(188,718)		(4,534,103)		(4,722,821)
Present value of lease liabilities	$	1,723,168	$	6,866,934	$	8,590,102