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Note 5 - Leases

6 Months Ended

Jun. 30, 2021

5. Leases

In March 2017, the Company entered into an operating facility lease agreement for approximately 34,500 rentable square feet located at the 1020 Space. The lease commenced in August 2017 for a period of 87 months with one renewal option for a five-year term. The Company did not include the renewal option period as the Company determined it was not reasonably certain the lease would be renewed as of the modification date.

In October 2018, the Company executed a sublease agreement in Palo Alto, California for approximately 4,240 square feet for office space. The rental term of the sublease commenced on October 30, 2018 and expired August 31, 2020.

In August 2020, the Company entered into a lease agreement in North Carolina for approximately 4,128 square feet for office space. The monthly lease payments will be approximately $9 thousand per month for a period of 63 months with a three-month rent abatement period. The lease commenced in the fourth quarter of 2020.

The Company’s rent expense including both short-term and variable lease components of $0.1 million associated with the facility leases was $0.4 million and $0.5 million for the three months ended June 30, 2021 and 2020, respectively. The Company’s rent expense including both short-term and variable lease components of $0.2 million associated with the facility leases was $0.8 million and $1.3 million for the six months ended June 30, 2021 and 2020, respectively. Cash paid for amounts included in the measurement of lease obligations for operating cash flows from operating leases was $1.0 million and $1.4 million for the six months ended June 30, 2021 and 2020, respectively. As of June 30, 2021, the Company’s operating leases had a weighted average remaining lease term of 3.4 years and a weighted average discount rate of 7.65%, which approximates the Company’s incremental borrowing rate.

As of June 30, 2021, minimum lease payments under non-cancelable operating leases by period were expected to be as follows (in thousands):

Year Ending December 31,
2021 (6 months remaining)	$	1,461
2022		2,983
2023		3,067
2024		2,643
2025		116
Thereafter		30
Total future minimum lease payments		10,300
Less: discount		(2,669	)
Total lease liabilities	$	7,631

1020 Marsh Sublease

On June 8, 2021, the Company entered into an operating sublease with Subtenant for the 1020 Space. The final agreement and consent received from the landlord was obtained on July 13, 2021. The term of the sublease will commence on August 1, 2021 through October 31, 2024, unless the master lease is terminated earlier due to a breach by Subtenant. Subtenant will also pay to the Company, as additional rent, an amount equal to the Company’s share of operating expenses attributable to the subleased premises due under the master lease. The terms entered into for this sublease agreement did not result in an impairment of the Company’s long-lived assets as of June 30, 2021.

Future base rent Grail, Inc. shall pay to the Company over the sublease term as of June 30, 2021, are as follows (in thousands):

Year Ending December 31,
2021 (6 months remaining)	$	948
2022		2,303
2023		2,372
2024		2,029
Total	$	7,652

In August 2018, the Company entered into an operating sublease agreement with EVA Automation, Inc. (“EVA”) for the 1020 Space. The 1020 Space sublease commenced on October 1, 2018 for 72 months. EVA was entitled to an abatement of base rent of approximately $0.9 million for the first five full calendar months of the term of the sublease. Lease income associated with this sublease is recorded in other income in the accompanying consolidated statement of operations. At the end of the first quarter ended March 31, 2020, the Company was informed by EVA that it will not be in a position to pay future sublease rental payments and intends to exit the sublease. For the six months ended June 30, 2020, the Company recorded an impairment charge to long-lived assets as previously discussed in Note 2. In addition, associated with this impairment charge the Company recorded a write down totaling $1.4 million related to a straight-line sublease rent receivable balance and previously capitalized commission charges, which has been recorded in other expense within the condensed consolidated statement of operations for the six months ended June 30, 2020. Overall, for the three and six months ended June 30, 2020 and for the year ended December 31, 2020, the Company recorded sublease loss associated with this sublease of $0.7 million and $13 thousand, respectively. During the three and six months ended June 30, 2020 and for the year ended December 31, 2020, cash received from EVA was $0.4 million and $1.2 million, respectively, which amount was included in the change in prepaid expenses and other assets for operating cash flows.