Annual report pursuant to Section 13 and 15(d)


12 Months Ended
Dec. 31, 2021

Note 12 – 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 is for a term of 24 months with a monthly base lease payment of $5,950.


On December 8, 2020, the Company entered into a Lease Agreement (the “NY Lease”) with BRG Office L.L.C. and Unit 2 Associates L.L.C. (the “Landlord”), pursuant to which the Company has agreed to lease certain premises located on the second floor (the “Leased Premises”) of 711 Stewart Avenue, Garden City, New York (the “Building”). The Leased Premises serve as the Company’s second location, offering a wide range of laboratory testing services for diagnosis, screening and evaluation of diseases, including COVID-19 and Respiratory Pathogen Panel Molecular tests.


The NY Lease was effective as of December 8, 2020, and commenced in January 2021 (the “Commencement Date”) when the facility was made available to us by the landlord. The initial term of the NY Lease is 10 years and seven months (the “Initial Term”), unless sooner terminated as provided in the NY Lease. We may extend the term of the NY Lease for one additional option period of five years. We have the option to terminate the NY Lease on the sixth anniversary of the Commencement Date, provided that we give the landlord written notice not less than nine months and not more than 12 months in advance and that we pay the landlord a termination fee.


For the first year of the NY Lease, we will pay a base rent of $56,963 per month (subject to a seven-month abatement period), with a gradual rental rate increase of 2.75% for each 12-month period thereafter in lieu of paying its proportionate share of common area operating expenses, culminating in a monthly base rent of $74,716 during the final months of the Initial Term. In addition to the monthly base rent, we are responsible for its proportionate share of real estate tax escalations in accordance with the terms of the NY Lease.


We also have a right of first refusal to lease certain additional space located on the ground floor of the Building containing 4,500 square feet and 4,600 square feet, as more particularly described in the NY Lease. We also have a right of first offer to purchase the Building during the term of the NY Lease.


At December 31, 2021, we had operating lease liabilities for the New York and New Jersey leases of approximately $4.9 million and right of use assets of approximately $4.4 million, which were included in the consolidated balance sheet.


The following summarizes quantitative information about our operating leases (in thousands):


    December 31, 2021     December 31, 2020  
    For the Years Ended  
    December 31, 2021     December 31, 2020  
Operating leases                
Operating lease cost   $ 816     $ 11  
Variable lease cost   $ -     $ 1  
Operating lease expense     816       12  
Total rent expense   $ 816     $ 12  



    December 31, 2021     December 31, 2020  
    For the Years Ended  
    December 31, 2021     December 31, 2020  
Operating cash flows used in operating leases   $ (357 )   $ (11 )
Right-of-use assets obtained in exchange for operating lease liabilities   $ -     $ 4,740  
Weighted-average remaining lease term – operating leases (in years)     9.4       10.3  
Weighted-average discount rate – operating leases     10.00 %     10.00 %


Maturities of the Company’s operating leases, excluding short-term leases, are as follows (in thousands):


Year Ended December 31, 2022   $ 774  
Year Ended December 31, 2023     738  
Year Ended December 31, 2024     747  
Year Ended December 31, 2025     768  
Year Ended December 31, 2026     783  
Thereafter     3,876  
Total     7,686  
Less present value discount     (2,825 )
Operating lease liabilities   $ 4,861