Quarterly report pursuant to Section 13 or 15(d)

Leases

v3.23.3
Leases
 9 Months Ended
Sep. 30, 2023
Leases  
Leases Leases
Operating Leases
On October 23, 2020, we completed the acquisition of CPM, which included the acquisition of a 4,000 square foot CLIA accredited laboratory located in Old Bridge, New Jersey, which was owned by CPM (which is now known as ProPhase Diagnostics NJ, Inc.). The lease was renewed in February 2023, for an additional 36 months until February 2026. The monthly base rent remains the same at $5,500 per month. The lease renewal resulted in the recognition of an additional right-of-use asset and operating lease liability of $170,000, respectively during the nine months ended September 30, 2023.
New York Second Floor Lease
On December 8, 2020, the Company entered into a Lease Agreement (the “NY Second Floor Lease”) with BRG Office L.L.C. and Unit 2 Associates L.L.C. (the “Landlord”), pursuant to which the Company leases certain premises located on the second floor (the “Second Floor Leased Premises”) of 711 Stewart Avenue, Garden City, New York (the “Building”). The Second Floor Leased Premises serve as the Company’s second location and corporate headquarters, offering a wide range of laboratory testing services for diagnosis, screening and evaluation of diseases, including COVID-19 and Respiratory Pathogen Panel Molecular tests.
On June 10, 2022, we entered into a First Amendment to the NY Second Floor Lease (the “Second Floor Lease Amendment”). The Second Floor Lease Amendment amends the NY Second Floor Lease to provide that any uncured default by the Company or any of its affiliate under the NY First Floor Lease (defined below) will constitute a default by the Company under the NY Second Floor Lease.
New York First Floor Lease
On June 10, 2022, the Company entered into a second Lease Agreement (the “NY First Floor Lease”) with Landlord, pursuant to which the Company leases approximately 4,516 sq. feet located on the first floor (the “NY First Floor Leased Premises”) of the Building. As described above, the Company currently leases space on the second floor of the Building. The First Floor Leased Premises will be used to expand the Company’s in-house lab capabilities to include traditional clinical testing across multiple specialty areas and Next Generation Sequencing (NGS) to perform Whole Genome Sequencing (WGS) and an array of genetic diagnostic test offerings for both clinical and research purposes.
The NY First Floor Lease became effective as of June 10, 2022 and will commence upon the date of the Landlord’s substantial completion of certain improvements to the NY First Floor Leased Premises (the “First Floor Commencement Date”), as set forth in the NY First Floor Lease, targeted to be approximately five months from the execution of the NY First Floor Lease. The initial term of the NY First Floor Lease will expire on July 15, 2031, unless sooner terminated as provided in the NY First Floor Lease. During the nine months ended September 30, 2023, the Company recognized additional $0.8 million right-of-use asset and operating lease liability for the NY First Floor Lease.
At September 30, 2023 and December 31, 2022, the Company had operating lease liabilities for the New York and New Jersey leases of approximately $5.3 million and $4.6 million, respectively, and and right of use assets of approximately $4.7 million and $4.1 million, respectively, which were included in the condensed consolidated balance sheet.
Finance Leases
On April 19, 2023, the Company entered into a master lease agreement for a laboratory equipment (the "First Equipment Lease") with a vendor. The First Equipment Lease has a 5-year term and is recognized as a finance lease under ASC 842. The present value of the minimum future obligations of $1.5 million was calculated based on an interest rate of 8.0%, which was recognized in finance lease liabilities in the condensed consolidated balance sheet.
On July 21, 2023, the Company entered into a master lease agreement for a laboratory equipment (the "Second Equipment Lease") with a vendor. The Second Equipment Lease has a 4-year term and is recognized as a finance lease under ASC 842. The present value of the minimum future obligations of $5.1 million was calculated based on an interest rate of 7.4%, which was recognized in finance lease liabilities in the condensed consolidated balance sheet.
On September 26, 2023, the Company entered into a master lease agreement for a laboratory equipment (the "Third Equipment Lease") with a vendor. The Third Equipment Lease has a 3-year term starting on the commencement date. The commencement date is when the equipment is shipped and installed, then the Company will provide Final Acceptance Certificate to the vendor. As of September 30, 2023, the commencement date was not established, therefore, there was no fixed assets or finance lease liability recognized in the condensed consolidated balance sheet.
Depreciation and interest expense related to the Equipment Lease was $440,000 and $510,000 for the three and nine months ended September 30, 2023, respectively.

The following summarizes quantitative information about our operating and finance leases (amounts in thousands):
For the three months ended For the nine months ended
September 30, 2023 September 30, 2022 September 30, 2023 September 30, 2022
Operating leases:
Operating lease cost $ 215  $ 204  $ 717  $ 612 
Total operating lease expense $ 215  $ 204  $ 717  $ 612 
Finance leases:
Interest lease cost $ 122  $ —  $ 142  $ — 
Depreciation expense 318  —  368  — 
Total finance lease expense $ 440  $ —  $ 510  $ — 
Other information related to the Company’s leases is shown below (dollar amounts in thousands):
For the nine months ended
September 30, 2023 September 30, 2022
Operating cash flows used in operating leases $ (606) $ (580)
September 30, 2023 December 31, 2022
Weighted-average remaining lease term – operating leases (in years) 7.7 8.5
Weighted-average remaining lease term – finance leases (in years) 4.0 — 
Weighted-average discount rate – operating leases 10  % 10  %
Weighted-average discount rate – finance leases 8  % — 
Finance lease asset (1) $ 6,201  — 
(1) As of September 30, 2023, the Company had recorded accumulated depreciation of approximately $368,000 for the finance lease asset. Finance lease assets are recorded within property and equipment, net on the Company’s condensed consolidated balance sheets.
Minimum lease payments over the remaining lease periods as of September 30, 2023 are as follows (amounts in thousands):
Operating Lease Finance Lease Total
Remaining periods in the year ended December 31, 2023 $ 232  $ 460  $ 692 
Year Ended December 31, 2024 953 1,840  2,793 
Year Ended December 31, 2025 977 1,840  2,817 
Year Ended December 31, 2026 941 1,840  2,781 
Year Ended December 31, 2027 955 1,188  2,143 
Thereafter 3,649  122  3,771 
Total lease payments 7,707  7,290  14,997 
Less present value discount (2,415) (1,014) (3,429)
Total $ 5,292  $ 6,276  $ 11,568 
Leases Leases
Operating Leases
On October 23, 2020, we completed the acquisition of CPM, which included the acquisition of a 4,000 square foot CLIA accredited laboratory located in Old Bridge, New Jersey, which was owned by CPM (which is now known as ProPhase Diagnostics NJ, Inc.). The lease was renewed in February 2023, for an additional 36 months until February 2026. The monthly base rent remains the same at $5,500 per month. The lease renewal resulted in the recognition of an additional right-of-use asset and operating lease liability of $170,000, respectively during the nine months ended September 30, 2023.
New York Second Floor Lease
On December 8, 2020, the Company entered into a Lease Agreement (the “NY Second Floor Lease”) with BRG Office L.L.C. and Unit 2 Associates L.L.C. (the “Landlord”), pursuant to which the Company leases certain premises located on the second floor (the “Second Floor Leased Premises”) of 711 Stewart Avenue, Garden City, New York (the “Building”). The Second Floor Leased Premises serve as the Company’s second location and corporate headquarters, offering a wide range of laboratory testing services for diagnosis, screening and evaluation of diseases, including COVID-19 and Respiratory Pathogen Panel Molecular tests.
On June 10, 2022, we entered into a First Amendment to the NY Second Floor Lease (the “Second Floor Lease Amendment”). The Second Floor Lease Amendment amends the NY Second Floor Lease to provide that any uncured default by the Company or any of its affiliate under the NY First Floor Lease (defined below) will constitute a default by the Company under the NY Second Floor Lease.
New York First Floor Lease
On June 10, 2022, the Company entered into a second Lease Agreement (the “NY First Floor Lease”) with Landlord, pursuant to which the Company leases approximately 4,516 sq. feet located on the first floor (the “NY First Floor Leased Premises”) of the Building. As described above, the Company currently leases space on the second floor of the Building. The First Floor Leased Premises will be used to expand the Company’s in-house lab capabilities to include traditional clinical testing across multiple specialty areas and Next Generation Sequencing (NGS) to perform Whole Genome Sequencing (WGS) and an array of genetic diagnostic test offerings for both clinical and research purposes.
The NY First Floor Lease became effective as of June 10, 2022 and will commence upon the date of the Landlord’s substantial completion of certain improvements to the NY First Floor Leased Premises (the “First Floor Commencement Date”), as set forth in the NY First Floor Lease, targeted to be approximately five months from the execution of the NY First Floor Lease. The initial term of the NY First Floor Lease will expire on July 15, 2031, unless sooner terminated as provided in the NY First Floor Lease. During the nine months ended September 30, 2023, the Company recognized additional $0.8 million right-of-use asset and operating lease liability for the NY First Floor Lease.
At September 30, 2023 and December 31, 2022, the Company had operating lease liabilities for the New York and New Jersey leases of approximately $5.3 million and $4.6 million, respectively, and and right of use assets of approximately $4.7 million and $4.1 million, respectively, which were included in the condensed consolidated balance sheet.
Finance Leases
On April 19, 2023, the Company entered into a master lease agreement for a laboratory equipment (the "First Equipment Lease") with a vendor. The First Equipment Lease has a 5-year term and is recognized as a finance lease under ASC 842. The present value of the minimum future obligations of $1.5 million was calculated based on an interest rate of 8.0%, which was recognized in finance lease liabilities in the condensed consolidated balance sheet.
On July 21, 2023, the Company entered into a master lease agreement for a laboratory equipment (the "Second Equipment Lease") with a vendor. The Second Equipment Lease has a 4-year term and is recognized as a finance lease under ASC 842. The present value of the minimum future obligations of $5.1 million was calculated based on an interest rate of 7.4%, which was recognized in finance lease liabilities in the condensed consolidated balance sheet.
On September 26, 2023, the Company entered into a master lease agreement for a laboratory equipment (the "Third Equipment Lease") with a vendor. The Third Equipment Lease has a 3-year term starting on the commencement date. The commencement date is when the equipment is shipped and installed, then the Company will provide Final Acceptance Certificate to the vendor. As of September 30, 2023, the commencement date was not established, therefore, there was no fixed assets or finance lease liability recognized in the condensed consolidated balance sheet.
Depreciation and interest expense related to the Equipment Lease was $440,000 and $510,000 for the three and nine months ended September 30, 2023, respectively.

The following summarizes quantitative information about our operating and finance leases (amounts in thousands):
For the three months ended For the nine months ended
September 30, 2023 September 30, 2022 September 30, 2023 September 30, 2022
Operating leases:
Operating lease cost $ 215  $ 204  $ 717  $ 612 
Total operating lease expense $ 215  $ 204  $ 717  $ 612 
Finance leases:
Interest lease cost $ 122  $ —  $ 142  $ — 
Depreciation expense 318  —  368  — 
Total finance lease expense $ 440  $ —  $ 510  $ — 
Other information related to the Company’s leases is shown below (dollar amounts in thousands):
For the nine months ended
September 30, 2023 September 30, 2022
Operating cash flows used in operating leases $ (606) $ (580)
September 30, 2023 December 31, 2022
Weighted-average remaining lease term – operating leases (in years) 7.7 8.5
Weighted-average remaining lease term – finance leases (in years) 4.0 — 
Weighted-average discount rate – operating leases 10  % 10  %
Weighted-average discount rate – finance leases 8  % — 
Finance lease asset (1) $ 6,201  — 
(1) As of September 30, 2023, the Company had recorded accumulated depreciation of approximately $368,000 for the finance lease asset. Finance lease assets are recorded within property and equipment, net on the Company’s condensed consolidated balance sheets.
Minimum lease payments over the remaining lease periods as of September 30, 2023 are as follows (amounts in thousands):
Operating Lease Finance Lease Total
Remaining periods in the year ended December 31, 2023 $ 232  $ 460  $ 692 
Year Ended December 31, 2024 953 1,840  2,793 
Year Ended December 31, 2025 977 1,840  2,817 
Year Ended December 31, 2026 941 1,840  2,781 
Year Ended December 31, 2027 955 1,188  2,143 
Thereafter 3,649  122  3,771 
Total lease payments 7,707  7,290  14,997 
Less present value discount (2,415) (1,014) (3,429)
Total $ 5,292  $ 6,276  $ 11,568