Note 8 - Related Party Lease

12 Months Ended

Dec. 31, 2022

Notes to Financial Statements

Lessee, Operating Leases [Text Block]

9. Leases

The Company leases an approximately 28,000 square foot facility located in Rancho Cordova, California for its corporate offices and in-house manufacturing. The lease was renewed in the first quarter of 2019 and is accounted for as an operating lease. The lease expires in May 2024.

Operating Leases

Operating lease assets and liabilities are recognized at the lease commencement date. Operating lease liabilities represent the present value of lease payments not yet paid. Operating lease assets represent our right to use an underlying asset and are based upon the operating lease liabilities adjusted for prepayments or accrued lease payments, initial direct costs, lease incentives, and impairment of operating lease assets. To determine the present value of lease payments not yet paid, we use the Company’s cost of capital based on existing debt instruments. Our material leases typically contain rent escalations over the lease term. We recognize expense for these leases on a straight-line basis over the lease term.

The following summarizes the Company’s operating leases:

	December 31, 2022			December 31, 2021
Right-of-use operating lease assets, net	$	372,000		$	571,000
Current lease liability (included in other current liabilities)		267,000			206,000
Non-current lease liability		131,000			398,000
Weighted average remaining lease term		1.4			2.4
Discount rate		22	%		22	%

Maturities of lease liabilities by year for our operating leases are as follows:

2023	$	329,000
2024		139,000
Total lease payments	$	468,000
Less: imputed interest		(70,000	)
Present value of operating lease liabilities	$	398,000

Operating Lease Costs

Lease costs recognized in consolidated statements of operations are summarized below:

	December 31,
	2022		2021
Operating lease cost	$	311,000	$	311,000
Variable lease cost		111,000		105,000
Total lease cost	$	422,000	$	416,000

Statement of Cash Flows

In January 2019, the Company signed an amendment to its Rancho Cordova, California lease. The amendment was accounted for as a modification and resulted in a right-of-use asset of $966,000 being recognized as a non-cash addition on the date of the amendment. Cash paid for amounts included in the measurement of operating lease liabilities in cash flows from operating activities were $319,000 and $310,000 for the years ended December 31, 2022 and 2021, respectively.

Finance Leases

Finance leases are included in equipment and other current and non-current liabilities on the consolidated balance sheet. The amortization and interest expense are included in general and administrative expense and interest expense, respectively on the statement of operations. These leases were not material for the years ended December 31, 2022 and 2021.

Lease Agreement with Z3 Investment LLC [Member]

Notes to Financial Statements

Lessee, Operating Leases [Text Block]

8. Related Party Lease

Z3 Investment

On March 24, 2022, the Company entered into a five year Lease Agreement with Z3 Investment LLC, an affiliate of the Company’s Chairman and CEO, and COO, beginning April 1, 2022, for approximately 35,000 square feet of laboratory and office space in Rancho Cordova, California. Under the terms of the agreement, monthly rent is $46,000 per month for the first six months, then increasing to $104,000 per month (with a 4% annual increase) thereafter. Additionally, the Company will pay all operating expenses as they become due estimated to be approximately $5,000 per month and will be expensed in the period incurred. The Company has the option to renew the lease for two 5-year periods. Additionally, the Company has the ability to opt out of the lease after one year if the CDMO facility is unable to be constructed as planned.

The Company performed an analysis of the lease and determined it to be an operating lease. A right-of-use asset and lease obligation were recorded at inception of the lease.

Operating Lease

Operating lease assets and liabilities are recognized at the lease commencement date. Operating lease liabilities represent the present value of lease payments not yet paid. Operating lease assets represent our right to use an underlying asset and are based upon the operating lease liabilities adjusted for prepayments or accrued lease payments, initial direct costs, lease incentives, and impairment of operating lease assets. To determine the present value of lease payments not yet paid, we use the Company’s cost of capital based on existing debt instruments. We recognize the expense for this lease on a straight-line basis over the lease term.

The following summarizes the Company’s operating lease:

	December 31, 2022
Right-of-use operating lease assets – related party, net	$	3,550,000
Current lease liability (included in other current liabilities)		433,000
Non-current lease liability – related party		3,495,000
Weighted average remaining lease term		4.8
Discount rate		22	%

Maturities of lease liabilities by year for our operating lease are as follows:

2023	$	1,256,000
2024		1,307,000
2025		1,359,000
2026		1,428,000
2027		1,133,000
Total lease payments	$	6,483,000
Less: imputed interest		(2,555,000	)
Present value of operating lease liabilities	$	3,928,000

Operating Lease Costs

Lease costs recognized in consolidated statements of operations are summarized below:

	December 31, 2022
Operating lease cost	$	964,000
Variable lease cost		71,000
Total lease cost	$	1,035,000

Statement of Cash Flows

Cash paid for amounts included in the measurement of operating lease liabilities was $587,000 for the year ended December 31, 2022.