8. LEASES

3 Months Ended

Mar. 31, 2022

Leases [Abstract]

8. LEASES

8. LEASES

We lease our office space and certain equipment under finance and operating leases. Our leases have remaining lease terms of one to ten years. Our office lease agreement includes both lease and non-lease components, which are accounted for separately. Our finance leases contain options to purchase the leased property. The depreciable life of assets and leasehold improvements are limited by the expected lease term, unless we are reasonably certain to exercise the purchase option.

In September 2021, we entered into an office lease with Redmond East Office Park LLC, a Washington limited liability company, pursuant to which we will lease approximately 16,681 square feet of space located in Redmond, Washington that we will use primarily for general office space and product testing. The lease provides for an initial term of 128 months that commenced November 1, 2021. Pursuant to the lease, annual base rent will be approximately $500,000 for the first year and is subject to annual increases of 3.0%. In addition to base rent, we will pay additional rent comprised of our proportionate share of any operating expenses, real estate taxes, and management fees. We have the option to extend the term for one ten-year renewal period, provided that the rent would be subject to market adjustment at the beginning of the renewal term. The total minimum lease payments related to this lease is $6.4 million.

In September 2021, we entered into a second office lease with Redmond East Office Park LLC, pursuant to which we will lease approximately 36,062 square feet of space located in Redmond, Washington that we will use primarily for general office and lab space. The lease provides for an initial term of 120 months with a target commencement date of July 1, 2022. Pursuant to the lease, annual base rent will be approximately $1.1 million for the first year and is subject to annual increases of 3.0%. In addition to base rent, we will pay additional rent comprised of our proportionate share of any operating expenses, real estate taxes, and management fees. We have the option to extend the term for one ten-year renewal period, provided that the rent would be subject to market adjustment at the beginning of the renewal term. The total minimum lease payments related to this forward-starting lease are $13.0 million. The lease liability associated with this forward-starting lease is excluded from the tables below.

In connection with the effectiveness of the second lease with Redmond East Office Park, we amended our current office lease to provide for early termination intended to coincide with our move into the new 36,062 square feet of space but, in any event, no later than October 31, 2022.

The components of lease expense were as follows:

		Three Months Ended
		March 31,
(in thousands)		2022		2021
Operating lease expense	$	244	$	116
Finance lease expense:
Amortization of leased assets		8		8
Interest on lease liabilities		1		1
Total finance lease expense		9		9
Total lease expense	$	253	$	125

Supplemental cash flow information related to leases was as follows:

		Three Months Ended
		March 31,
(in thousands)		2022		2021
Cash paid for amounts included in measurement of lease liabilities:
Operating cash flows from operating leases	$	299	$	166
Operating cash flows from finance leases		1		1
Financing cash flows from finance leases		8		8

Supplemental balance sheet information related to leases was as follows:

		March 31,		December 31,
(in thousands)		2022		2021
Operating leases
Operating lease right-of-use assets	$	5,368	$	5,577
Current portion of operating lease liability		686		849
Operating lease liability, net of current portion		4,882		4,983
Total operating lease liabilities	$	5,568	$	5,832
Finance leases
Property and equipment, at cost	$	112	$	112
Accumulated depreciation		(63)		(56)
Property and equipment, net	$	49	$	56
Current portion of finance lease obligations	$	24	$	21
Finance lease obligations, net of current portion		15		26
Total finance lease liabilities	$	39	$	47
Weighted Average Remaining Lease Term
Operating leases		9.5 years		9.5 years
Finance leases		1.0 years		1.2 years
Weighted Average Discount Rate
Operating leases		2.5%		2.5%
Finance leases		6.3%		6.3%

As of March 31, 2022, maturities of lease liabilities were as follows:

(in thousands)		Operating		Finance
Years Ended December 31,		leases		leases
2022	$	600	$	19
2023		535		21
2024		551		-
2025		567		-
Thereafter		4,069		-
Total minimum lease payments		6,322		40
Less: amount representing interest		(754)		(1)
Present value of capital lease liabilities	$	5,568	$	39