Note 8 – Leases

The Company has various lease agreements with terms up to 10 years, including leases of office space, a laboratory and manufacturing facility, and various equipment. Some leases include purchase, termination or extension options for one or more years. These options are included in the lease term when it is reasonably certain that the option will be exercised.

Operating lease obligations

On November 1, 2013, the Company entered into a 7-year lease for office space in Bedminster, New Jersey which commenced in June, 2014 at a monthly rent of approximately $13,000, increasing to approximately $14,000 per month toward the end of the term, which is May 2021. The Company was obligated to provide an initial security deposit of $300,000 to obtain the office lease space. As of December 31, 2020, the total deposit had been returned to the Company.

On September 23, 2020, the Company entered into an amendment to the Bedminster lease. Pursuant to the amendment, the Company will lease an additional 3,034 rentable square feet (“Expansion Premises”). The amendment becomes effective upon the date on which the landlord delivers to the Company the Expansion Premises, which is expected to occur in the second quarter of 2021, and extends the term of the lease for seven years from such date. There is no renewal option, no security deposit, no residual value or significant restrictions or covenants other than those customary in such arrangements. Except as expressly provided, all other terms, covenants, conditions and agreements as set forth in the lease will remain unchanged and in full force and effect. The total lease commitment over the seven-year extension period is approximately $1.8 million.

On December 15, 2016, the Company entered into a 10-year, 3-month lease to consolidate our locations while expanding our laboratory and manufacturing facilities. The lease began August 2017. The monthly rent will start at approximately $43,000 increasing to approximately $64,000 in the final year. To obtain the laboratory and facility site, the Company was obligated to provide an initial security deposit of $586,000. This deposit was subsequently reduced to $286,000. It can be further reduced by $86,000 on the next anniversary of the rent commencement date, after which it will remain at $200,000 for the balance of the lease term.

The assets and liabilities from operating and finance leases are recognized at the lease commencement date based on the present value of remaining lease payments over the lease term using the Company’s incremental borrowing rates or implicit rates, when readily determinable. Short-term leases, which have an initial term of 12 months or less, are not recorded on the balance sheet.

The Company’s operating leases do not provide an implicit rate that can readily be determined. Therefore, the Company uses a discount rate based on its incremental borrowing rate, which is determined using the average of borrowing rates explicitly stated in the Company’s finance leases.

The Company incurred lease expense for its operating leases of approximately $813.7 thousand for the years ended December 31, 2020 and 2019. The Company incurred amortization expense on its operating lease right-of-use assets of approximately $484.6 thousand and $452.1 thousand for the years ended December 31, 2020 and 2019, respectively.

Finance Leases

The Company incurred interest expense on its finance leases of approximately $6.7 thousand and $11.7 thousand for the years ended December 31, 2020 and 2019, respectively. The Company incurred amortization expense on its finance lease right-of-use assets of approximately $59.0 thousand and $122.8 thousand for the years ended December 31, 2020 and 2019, respectively.

The following table presents information about the amount and timing of liabilities arising from the Company’s operating leases, excluding the Expansion Premises of the amended Bedminster lease which the Company has not taken control of as of December 31, 2020, and finance leases as of December 31, 2020 (in thousands):

Schedule of Maturity of Operating and Finance Leases Liabilities 

The following table presents information about the amount and timing of liabilities arising from the Company’s operating and finance leases as of December 31, 2019 (in thousands):