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Note 7 - Leases

3 Months Ended

Mar. 31, 2022

The Company has obtained the right of use for office and manufacturing facilities under six operating lease agreements with initial terms exceeding one year and has two operating lease agreements for facilities with initial terms of one year or less.

The Company obtained the right of use of real estate located in South San Francisco, California, in November 2020 under a lease that was scheduled to terminate on September 30, 2025, which has been extended until March 31, 2029, with no additional extension option. The Company also obtained the right of use of real estate located in South San Francisco, California, in June 2015 that was scheduled to terminate on April 30, 2020, with a five-year extension option that the Company exercised in July 2019, extending the lease until April 30, 2025, which has been further extended until March 31, 2029, with an option to extend for an additional eight years. In addition, the Company has the right of use of a facility located in South San Francisco, California, under a lease that, following a one-year extension, now terminates on July 31, 2022, with no extension option. Further, the Company has the right of use of a facility located in South San Francisco, California, under a lease that terminates on March 30, 2029, with a five-year renewal option. The Company also has the right of use of two facilities in Burlingame, California, under leases that terminate on May 31, 2025, both of which have two 30-month extension options. The Company has also identified short-term embedded leases for the rental of facilities in South San Francisco, California and Lodi, Wisconsin.

As of March 31, 2022, the weighted average discount rate for operating leases with initial terms of more than one year was 9.27% and the weighted average remaining term of these leases was 6.67 years. Discount rates were determined using the Company’s marginal rate of borrowing at the time each lease commenced or was extended.

The following table summarizes the Company’s undiscounted cash payment obligations for its operating lease liabilities with initial terms of more than twelve months as of March 31, 2022 (in thousands):

Year Ending December 31,
2022 (nine months remaining)	$	1,590
2023		2,168
2024		2,242
2025		2,316
2026		2,852
Thereafter		6,770
Undiscounted total		17,938
Less: imputed interest		(5,022	)
Present value of future minimum payments		12,916
Current portion of operating lease liability		(1,079	)
Operating lease liability, net of current portion	$	11,837

The Company presently has no finance leases and no future obligations under operating leases with initial terms of one year or less.

Certain operating lease agreements for facilities include non-lease costs, such as common area maintenance, which are recorded as variable lease costs. Operating lease expenses for the three months ended March 31, 2022 and 2021, are summarized as follows (in thousands):

	*Three Months Ended March 31,*
	*2022*		*2021*
Lease cost
Operating lease cost	$	719	$	662
Short-term lease cost		118		60
Variable lease cost		265		293
Sublease income		—		(36	)
Total lease cost	$	1,102	$	979

Net cash outflows associated with operating leases totaled $889,000 and $934,000 in the three months ended March 31, 2022 and 2021, respectively.

In addition, in September 2021 the Company executed a lease for a facility in South San Francisco, California, with an initial term expiring on March 31, 2029, with an option to extend for an additional eight years. The lease was rent free until April 1, 2022, with escalating rent payments over the remaining life of the lease, under which minimum rent payments total $14.9 million. The lease includes tenant improvement provisions which are expected to cost the Company approximately $7 million, of which $678,000 had been expended by March 31, 2022, recorded within other long-term assets in the condensed consolidated balance sheet. The Company has concluded that the leasehold improvements are lessor-owned and determined that the lease has not yet commenced for accounting purposes. The cost of leasehold improvements incurred prior to lease commencement will be included in the related right-of-use asset when the lease is deemed to commence, which is expected to occur in the three months ending September 30, 2022.