As discussed in Note 2, on January 1, 2022, the Company adopted ASU 2016-06 issued by the FASB related to leases that outlines a comprehensive lease accounting model and supersedes the prior lease guidance. The Company adopted this guidance using the modified retrospective approach and elected the optional transition method. As a result, comparative prior periods in the Company’s condensed consolidated financial statements are not adjusted for the impacts of the new standard.

Adoption of ASU 2016-02 resulted in the initial recording of additional net lease assets and lease liabilities of approximately $15,691 and $30,463, respectively, as of January 1, 2022. Incremental borrowing rates as of January 1, 2022, the date the new standard was adopted, were used to calculate the present value of the Company’s lease portfolio as of that date. Leases previously identified as build-to-suit leases were derecognized pursuant to the transition guidance provided for build-to-suit leases in ASU 2016-02. The impact of the derecognition of the build-to-suit lease was a net reduction of $3,993 to accumulated deficit calculated as of January 1, 2022. The standard did not materially impact the consolidated net losses or operating cash flows. During the three months ended June 30, 2022 an adjustment to the incremental borrowing rate used resulted in revised net lease assets and lease liabilities of $13,001 and $27,723, respectively.

ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. The Company’s lease ROU assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. In determining the present value of lease payments, the Company uses its incremental borrowing rate based on the information available at the lease commencement date to determine the appropriate discount rate by multiple asset classes. Variable lease payments that are not based on an index or that result from changes to an index subsequent to the initial measurement of the corresponding lease liability are not included in the measurement of lease ROU assets or liabilities and instead are recognized in earnings in the period in which the obligation for those payments is incurred. Lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise any such options. Lease expense is recognized on a straight‐line basis over the expected lease term. Rent expense was $1,923 and $765 for the six months ended June 30, 2022 and 2021, respectively. Rent expense was $940 and $473 for the three months ended June 30, 2022 and 2021, respectively.

On March 13, 2019, Legacy Celularity entered into a lease agreement for a 147,215 square foot facility consisting of office, manufacturing and laboratory space in Florham Park, New Jersey, which expires in 2036. The Company has the option to renew the term of the lease for two additional five-year terms so long as the lease is then in full force and effect. The lease term commenced on March 1, 2020 subject to an abatement of the fixed rent for the first 13 months following the lease commencement date. The initial monthly base rent is approximately $230 and will increase annually. The Company is obligated to pay real estate taxes and costs related to the premises, including costs of operations, maintenance, repair, replacement and management of the new leased premises. In connection with entering into this lease agreement, Legacy Celularity issued a letter of credit of $14,722 which is classified as restricted cash (non-current) on the condensed consolidated balance sheets as of June 30, 2022 and December 31, 2021. The lease agreement allows for a landlord provided tenant improvement allowance of $14,722 to be applied to the costs of the construction of the leasehold improvements.

The Company is not the legal owner of the leased space. However, in accordance with ASC 840, Leases, the Company was deemed to be the owner of the leased space, including the building shell, during the construction period because of the Company’s expected level of direct financial and operational involvement in the substantial tenant improvement. As discussed in Note 2, leases previously identified as build-to-suit leases were derecognized pursuant to the transition guidance provided for build-to-suit leases in ASU 2016-02.

	Balance as of December 31, 2021			Adjustments due to adoption of ASC 842			Balance as of January 1, 2022
Assets
Property and equipment, net	$	90,625		$	(12,421	)	$	78,204
Operating lease right-of-use-assets		-			13,001			13,001
Liabilities
Current lease liabilities - operating		-			-			-
Current portion of financing obligation		3,051			(3,051	)		-
Noncurrent lease liabilities - operating		-			27,723			27,723
Financing obligations		28,085			(28,085	)		-
Stockholders' equity
Accumulated deficit		(663,681	)		3,993			(659,688	)

The components of the Company’s lease costs are classified on its condensed consolidated statements of operations as follows:

	Three Months Ended June 30,		Six Months Ended June 30,
	2022		2022

Operating lease cost	$	759		1,519
Variable lease cost		367		692
Total operating lease cost	$	1,126	$	2,211
Short term lease cost	$	34	$	80

The table below shows the cash and non-cash activity related to the Company’s lease liabilities during the period:

	Six Months Ended June 30,
	2022

Cash paid related to lease liabilities:
Operating cash flows from operating leases	$	1,417

Non-cash lease liability activity:
Right-of-use assets obtained in exchange for lease obligations:
Operating leases	$	-

As of June 30, 2022, the maturities of the Company’s operating lease liabilities were as follows:

2022 (remaining six months)	$	1,416
2023		2,895
2024		2,969
2025		3,042
2026		3,116
2027		3,190
Thereafter		70,342
Total lease payments		86,970
Less imputed interest		(59,120	)
Total	$	27,850

As of June 30, 2022, the weighted average remaining lease term of the Company’s operating leases was 23.7 years, and the weighted average discount rate used to determine the lease liability for operating leases was 11.12%.