13. COMMITMENTS AND CONTINGENCIES

The following table summarizes our contractual obligations as of December 31, 2019 (in thousands):

Leases

We have operating leases for our corporate offices.

Operating leases with a term of 12 months or longer are included in ROU assets, other current liabilities, and operating lease liabilities on our consolidated balance sheets. Finance leases are included in property and equipment, other current liabilities, and other long-term liabilities on our consolidated balance sheets.

Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. As most of our leases do not provide an implicit rate, we use the incremental borrowing rate of comparable companies from a representative peer group selected based on industry and market capitalization. The operating lease ROU asset also includes any lease payments made and excludes lease incentives and initial direct costs incurred. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term.

Lease Arrangements

We had an operating lease agreement for office space in Vancouver, Canada, which expired in January 2019. Pursuant to the operating lease agreement, we had the option to terminate the lease early without penalty at any time after January 1, 2017 so long as we provided three months prior written notice to the landlord. This lease was not renewed.

On November 19, 2018, we entered into a lease agreement for new office space in Vancouver, British Columbia, which commenced on February 1, 2019, and has a four-year term. Pursuant to this lease, we rent approximately 2,367 square feet of office space. The annual rent is approximately $0.1 million.

The future minimum annual lease payments under the Vancouver lease are as follows (in thousands):

In February 2015, we entered into an office lease with Grosvenor International (Atlantic Freeholds) Limited, or Landlord, pursuant to which we leased approximately 11,526 square feet located at 19820 North Creek Parkway, Bothell, Washington, 98011, commencing on February 15, 2015. The initial term of this lease was set to expire on April 30, 2018, with an option to extend the term for one approximately three-year period. Our monthly base rent for the premises started at approximately $18,000 which commenced on May 1, 2015 and increased on an annual basis up to approximately $20,000. We received a construction allowance, for leasehold improvements that we made, of approximately $0.1 million. We were responsible for 17% of taxes levied upon the building during each calendar year of the term. We delivered to the Landlord a letter of credit in the amount of $0.2 million, in accordance with the terms of the lease, which the Landlord may draw upon for base rent or other damages in the event of our default under this lease. In August 2015 we exercised our expansion option for an additional 2,245 square feet of office space, which commenced on August 1, 2015. We did not exercise our renewal option under the lease agreement. We negotiated an early termination and the lease expired on March 31, 2018.

On December 11, 2017, we entered into a lease, or the New Lease, with 520 Pike Street, Inc., or Pike, pursuant to which we leased approximately 3,187 square feet located at Suite 2250 at 520 Pike Tower, Seattle, Washington, 98101, which commenced on March 1, 2018. The initial term of the New Lease will expire at the end of the month on the third anniversary of the New Lease.

Our monthly base rent for the premises started at approximately $11,685 which commenced on March 1, 2018 and will increase on an annual basis up to approximately $12,397. In addition, we paid a security deposit to Pike in the amount of $37,192, subject to periodic reductions in the amount of $12,397 after each of the first and second anniversaries of the New Lease, which Pike may retain for base rent or other damages, in the event of our default under the New Lease.

We may not assign or sublet all or any portion of the premises without the consent of Pike, and Pike shall be entitled to 50% of any profit which we may receive above and beyond the rental price of the New Lease. Upon receipt of notice of our intent to assign or sublease any portion of the leased premises, Pike may terminate that portion of the premises within 30 days, and provided, that if such portion constitutes 50% or more of the total square footage of the premises, Pike may terminate the New Lease in its entirety.

The future minimum annual lease payments under the New Lease are as follows (in thousands):

Consolidated rent and operating expense relating to both the Vancouver, Canada and Seattle, Washington, and Bothell, Washington offices for years ended December 31, 2019, 2018 and 2017 was $0.2 million, $0.3 million and $0.6 million, respectively.

Other information related to leases was as follows:

Guarantees and Indemnifications

We indemnify our officers, directors and certain consultants for certain events or occurrences, subject to certain limits, while the officer or director is or was serving at its request in such capacity. The term of the indemnification period is equal to the officer’s or director’s lifetime.

The maximum amount of potential future indemnification is unlimited; however, we have obtained director and officer insurance that limits our exposure and may enable us to recover a portion of any future amounts paid. We believe that the fair value of these indemnification obligations is minimal. Accordingly, we have not recognized any liabilities relating to these obligations as of December 31, 2019.

We have certain agreements with certain organizations with which it does business that contain indemnification provisions pursuant to which it typically agrees to indemnify the party against certain types of third-party claims. We accrue for known indemnification issues when a loss is probable and can be reasonably estimated. There were no accruals for or expenses related to indemnification issues for any period presented.

Material Changes in Financial Condition

The increase in assets as at December 31, 2019 as compared to December 31, 2018 primarily relates to increase in cash and cash equivalents from the December 2019 public offering, warrant exercises and from our purchase agreement with LPC. The decrease in liabilities as at December 31, 2019 compared to December 31, 2018 was primarily due to lower clinical trial accruals associated with completion of our ORCA-1 trial in June 2019.