Quarterly report pursuant to Section 13 or 15(d)

Leases

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Leases
 3 Months Ended
Mar. 31, 2024
Leases  
Leases Leases
Operating Leases
New Jersey Laboratory Lease
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 in Fiscal 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. The Company may extend the term of the NY First Floor Lease for one additional option period of five years pursuant to the terms described in the NY First Floor Lease. The Company has the option to terminate the NY First Floor Lease effective July 31, 2027 (the “Early Termination Date”),
provided the Company gives the Landlord written notice not less than nine months and not more than 12 months prior to the Early Termination Date and pays the Landlord a termination fee as more particularly described in the Lease.
For the first year of the NY First Floor Lease, the Company will pay a base rent of $11,290 per month (subject to an eight month abatement period), with a gradual rental rate increase of approximately 2.75% for each twelve month period thereafter, culminating in a monthly base rent of $14,026 during the final months of the initial term of the NY First Floor Lease. In addition to the monthly base rent, the Company is responsible for its proportionate share of real estate tax escalations in accordance with the terms of the NY First Floor Lease. The Landlord will provide a construction allowance to the Company in an aggregate amount not to exceed $203,000, to reimburse the Company for the cost of certain improvements to be made by the Company to the First Floor Leased Premises.
At March 31, 2024 and December 31, 2023, the Company had operating lease liabilities for the New York and New Jersey leases of approximately $5.1 million and $5.2 million, respectively, and right of use assets of approximately $4.5 million and $4.6 million, respectively, which were included in the condensed consolidated balance sheets.
The following summarizes quantitative information about our operating leases (amounts in thousands):
For the three months ended
March 31, 2024 March 31, 2023
Operating leases:
Operating lease cost $ 239  $ 204 
Total operating lease cost $ 239  $ 204 
Finance leases:
Interest lease cost $ 110  $ — 
Depreciation expense 180  — 
Total finance lease expense $ 290  $ — 
Other information related to the Company’s leases is shown below (dollar amounts in thousands):
For the three months ended
March 31, 2024 March 31, 2023
Operating cash flows used in operating leases $ (238) $ (198)
March 31, 2024 December 31, 2023
Weighted-average remaining lease term – operating leases (in years) 7.2 7.4
Weighted-average remaining lease term – finance leases (in years) 3.5 3.8
Weighted-average discount rate – operating leases 10.00  % 10.00  %
Weighted-average discount rate – finance leases 7.56  % 7.56  %
Finance lease asset (1) $ 5,417  $ 5,809 
(1) As of March 31, 2024 and December 31, 2023, the Company had recorded accumulated depreciation of approximately $1.2 million and $0.8 million for the finance lease asset, respectively. Finance lease assets are recorded within property and equipment, net on the Company’s Condensed Consolidated Balance Sheets.
Maturities of the Company’s operating leases, excluding short-term leases, are as follows (in thousands):
Operating Lease Finance Lease Total
Nine Months Ended December 31, 2024 714  1,380  2,094 
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 
Year Ended December 31, 2028 982  122  1,104 
Thereafter 2,667  —  2,667 
Total lease payments 7,236  6,370  13,606 
Less present value discount (2,155) (788) (2,943)
Total $ 5,081  $ 5,582  $ 10,663