Quarterly report pursuant to Section 13 or 15(d)

Leases

v3.21.2
Leases
9 Months Ended
Sep. 30, 2021
Leases  
Leases

13. Leases

Effective January 1, 2019, the Company adopted ASC 842 using the optional transition method, applying no practical expedients. In accordance with the optional transition method, the Company did not recast the prior period consolidated financial statements. The lease term is the noncancelable period of the lease. There are no termination provisions or renewal periods reasonably certain of exercise or options controlled by the lessor.

The Company conducts its operations from leased facilities in Morrisville, North Carolina, San Antonio, Texas and New Brunswick, New Jersey. The North Carolina lease will expire in 2027 and the Texas and New Jersey leases will expire in 2023. The leases are for general office space and lab space and require the Company to pay property taxes, insurance, common area expenses and maintenance costs.

In June 2021, the Company entered into a lease agreement with Durham KTP Tech 7, LLC, to lease a 15,996 square foot facility in Morrisville, North Carolina to expand its research and development activities. The lease has a term of eight years following the commencement date and provides the Company the option to extend the lease term for one five year term. It is subject to fixed rate escalation increases and also provides up to $2.4 million for tenant improvements. As the lease had not commenced as of September 30, 2021, the Company has not recorded an operating lease ROU asset or lease liability for this lease in the accompanying condensed consolidated balance sheets. The initial estimate of the minimum amount of undiscounted lease payments due under this lease is $4.66 million. Further, the tabular disclosure of minimum lease payments below does not include payments due under this lease.

In October 2021, Scorpion entered into a lease agreement with Merchants Ice II, LLC, to lease a 20,144 square foot facility in San Antonio, TX for general office, laboratory, research, analytical, and/or biomanufacturing purposes. Merchants Ice II, LLC is a nonprofit entity investing in the building with the intention to encourage development of emerging technologies. As a result, investments made by both Merchants Ice II, LLC and Scorpion into the building may qualify and share tax credits under the New Market Tax Credit (“NMTC”) program. Scorpion agreed that all investments and expenditures qualifying under the NMTC (i.e., certain equipment and building improvements) would be purchased by the Merchants Ice II, LLC to generate the largest possible tax incentive and Scorpion would reimburse Merchant Ice, LLC for these payments. As of September 30, 2021, and prior to the execution of the lease agreement, Scorpion has reimbursed Merchant Ice, LLC $8.2 million which is shown in other assets on the consolidated balance sheets. Upon lease commencement, these assets will be classified as a right-of-use asset. The lease has a term of fifteen years following the commencement date and provides Scorpion the option to extend the lease term for one fifteen-year term, and one subsequent ten year term upon expiration of the first extended term. It is subject to fixed rate escalation increases and also provides up to $2.4 million for tenant improvements. As the lease had not commenced as of September 30, 2021, Scorpion has not recorded a right-of-use asset or lease liability for this lease in the accompanying condensed consolidated balance sheets. The initial estimate of the minimum amount of undiscounted lease payments due under this lease is $11.1 million.

Total cash paid for operating leases during the three and nine months ended September 30, 2021 was $0.1 million and $0.3 million respectively, and is included within cash flows from operating activities within the consolidated statement of cash flows.

The Company leases furniture and specialized lab equipment under finance leases. The related right-of-use assets are amortized on a straight-line basis over the lesser of the lease term or the estimated useful life of the asset. The effective interest rate is 5.63%.

The Company’s lease cost is reflected in the accompanying statements of operations and comprehensive loss as follows:

For the Three Months Ended September 30, 2021

For the Nine Months Ended September 30, 2021

Operating lease cost

$

121,520

$

348,631

Finance lease cost

Amortization of lease assets

62,860

122,310

Interest on lease liabilities

7,812

14,900

Total finance lease cost

$

70,672

$

137,210

The weighted average remaining lease term and incremental borrowing rate as of September 30, 2021 were as follows:

Weighted average remaining lease term

Operating leases

5.6

years

Finance leases

2.1

years

Weighted average discount rate

Operating leases

6.44

%

Finance leases

5.63

%

Maturities of operating and finance lease liabilities as of September 30, 2021 were as follows:

Operating Leases

    

Finance Leases

    

Total

2021 (excluding the nine months ended September 30, 2021)

$

105,491

$

61,508

$

166,999

2022

426,539

281,042

707,581

2023

292,921

135,631

428,552

2024

231,503

131,256

362,759

2025

238,452

-

238,452

2026

245,607

-

245,607

Thereafter

209,214

-

209,214

Total minimum lease payments

1,749,727

609,437

2,359,164

Less: imputed interest

(255,742)

(38,996)

(294,738)

Present value of lease liabilities

$

1,493,985

$

570,441

$

2,064,426