LEASES

9 Months Ended

Sep. 30, 2022

Operating Leases

The Company has operating leases for office and laboratory space in the borough of Manhattan in New York, New York and in Cambridge, Massachusetts, which expire in 2026 and 2028, respectively. On March 31, 2022, the Company entered into a facility lease in San Diego, California (the “San Diego Lease”) with Torrey Pines Science Center Limited Partnership for approximately 5,200 square feet of laboratory and office space. The term of the San Diego Lease is 62 months and the lease commencement date was April 19, 2022. The San Diego Lease will expire in June 2027. See Note 15 for information regarding an additional lease the Company entered into in October 2022.

Base rent for the San Diego Lease is $6.35 per square foot in the first year of the San Diego Lease, with a rent abatement for the second and third full months of the first year. The base rent will increase by approximately 3% on each anniversary of the lease commencement date. The Company is also required to pay its share of operating expenses and property taxes. The San Diego Lease provides for a one-time option to extend the lease term for an additional five years at the then fair rental value. The Company recorded a $1.7 million right-of-use (“ROU”) asset and $1.7 million lease liabilities for the San Diego Lease.

During the second quarter of 2022, the Company decided to consolidate its research and development efforts in Cambridge, Massachusetts, and the Company intends to sublease the San Diego laboratory and office space. As a result, the Company recognized an impairment charge of approximately $0.8 million on the San Diego Lease ROU asset during the nine months ended September 30, 2022, which is recorded in general and administrative expense on the condensed consolidated statements of operations. There was no impairment charge recognized for the three months ended September 30, 2022.

On March 5, 2022, the Company entered into an Agreement to Assign Space Lease with Regen Lab USA LLC (“Regen”) pursuant to which the Company agreed to assign its Brooklyn, New York lease (the “Brooklyn Lease”) to Regen. The effective date of the assignment was contingent upon, among other things, a consent from BioBat, Inc. (the “Landlord”). Additionally, Regen agreed to purchase certain equipment from the Company for $50,000, partly reimburse the Company $50,000 toward certain existing unamortized leasehold improvements, and to reimburse the Company for the existing security deposit the Company had under the Brooklyn Lease of approximately $63,000.

On March 25, 2022, the Company entered into an Assignment and Assumption of Lease Agreement (the “Assignment Agreement”) with Regen, which included the Landlord’s consent to the assignment. The effective date of the assignment was March 28, 2022. Under the Assignment Agreement, Regen (i) accepted the assignment of the Brooklyn Lease; (ii) assumed all of the obligations, liabilities, covenants and conditions of the Company’s as tenant under the Brooklyn Lease; (iii) assumed and agreed to perform and observe all of the obligations, terms, requirements, covenants and conditions to be performed or observed by the Company under the Brooklyn Lease; and (iv) made all of the representations and warranties under the Brooklyn Lease with the same force and effect as if Regen had executed the Brooklyn Lease originally as the tenant.

Notwithstanding Regen’s assumption of the Brooklyn Lease, the Company remains liable and responsible for the due keeping, and full performance and observance, of all the provisions of the Brooklyn Lease applicable to the tenant thereunder. As a result of the Assignment Agreement, the Company wrote off the remaining ROU asset balance and the corresponding lease liability.

The Company accounts for leases under ASC 842, Leases. Operating leases are included in “Right-of use assets - operating leases” within the Company’s balance sheets and represent the Company’s right to use an underlying asset for the lease term. The Company’s related obligation to make lease payments are included in “Operating lease liabilities, non-current” and “Operating lease liabilities, current” within the Company’s balance sheets. ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. Because the rate implicit in the lease is not readily determinable, the Company uses its incremental borrowing rates based on the information available at the lease commencement date in determining the present value of lease payments. Lease expense for lease payments is recognized on a straight-line basis over the lease term. Leases with an initial term of 12 months or less are not recorded on the balance sheet and are recognized as lease expense on a straight-line basis over the lease term.

Some leasing arrangements require variable payments that are dependent on usage or may vary for other reasons, such as payments for insurance, tax payments and other miscellaneous costs. The variable portion of lease payments is not included in the ROU assets or lease liabilities. Rather, variable payments, other than those dependent upon an index or rate, are expensed when the obligation for those payments is incurred and are included in lease expenses. Accordingly, all expenses associated with a lease contract are accounted for as lease expenses.

During the three and nine months ended September 30, 2022 and 2021, the net operating lease expenses were as follows (in thousands):

	Three months ended September 30,
	2022			2021
Operating lease expense	$	143		$	187
Sublease income		(21	)		(21	)
Variable lease expense		60			6
Total lease expense	$	182		$	172

	Nine months ended September 30,
	2022			2021
Operating lease expense	$	476		$	501
Sublease income		(63	)		(62	)
Variable lease expense		113			16
Total lease expense	$	526		$	455

The tables below show the beginning balances of the operating ROU assets and lease liabilities as of January 1, 2022 and the ending balances as of September, 2022, including the changes during the period (in thousands).

	Operating Lease ROU Assets

Operating lease ROU assets at January 1, 2022	$	2,567
Initial measurement of operating lease ROU assets		1,706
Amortization of operating lease ROU assets		(267	)
Impairment of ROU assets		(772	)
Remeasurement of ROU asset		50
Write off of ROU asset due to lease termination		(1,372	)
Operating lease ROU assets at September 30, 2022	$	1,912

	Operating Lease Liabilities
Operating lease liabilities at January 1, 2022	$	2,723
Initial measurement of operating lease liabilities		1,706
Principal payments on operating lease liabilities		(223	)
Write off of operating lease liability due to lease termination		(1,453	)
Operating lease liabilities at September 30, 2022		2,752
Less non-current portion		2,317
Current portion at September 30, 2022	$	436

As of September 30, 2022, the Company’s operating leases had a weighted-average remaining life of 4.9 years with a weighted-average discount rate of 8.97%. The maturities of the operating lease liabilities are as follows (in thousands):

	As of September 30, 2022
2022	$	166
2023		673
2024		688
2025		703
2026		708
Thereafter		470
Total payments		3,408
Less imputed interest		(656	)
Total operating lease liabilities	$	2,752