12 — Leases

Lease assets and lease liabilities are recognized at the commencement of an arrangement where it is determined at inception that a lease exists. Lease assets represent the right to use an underlying asset for the lease term, and lease liabilities represent the obligation to make lease payments arising from the lease. These assets and liabilities are initially recognized based on the present value of lease payments over the lease term calculated using our incremental borrowing rate, unless the rate implicit in the lease is readily determinable. Lease assets also include any upfront lease payments made and exclude lease incentives. Lease terms include options to extend or terminate leases when it is reasonably certain that those options will be exercised.

Variable lease payments are expensed as incurred and include annual rent adjustments based on the consumer price index. Leases with an initial term of 12 months or less are not recorded on the balance sheet, and the expense for these short-term leases and for operating leases is recognized on a straight-line basis over the lease term.

Lease agreements with lease and nonlease components are combined as a single lease component. The depreciable life of lease assets and leasehold improvements is limited by the expected lease term.

We have only one material lease contract outstanding. In January 2014, we entered into a non-cancelable operating lease, commencing July 1, 2014, for our manufacturing and headquarters facility in Winter Springs, Florida owned by Susi, LLC, an entity controlled by our President and CEO, Roger Susi. Pursuant to the terms of our lease for this property, the monthly base rent is $34,133, adjusted annually for changes in the consumer price index. Under the terms of the lease, we are responsible for property taxes, insurance and maintenance expenses. Prior to May 31, 2019, the expiration date of the initial lease term, and pursuant to the terms of the lease contract, we renewed the lease for an additional five years, resulting in a new lease expiration date of May 31, 2024. Unless advance written notice of termination is timely provided, the lease will automatically renew for one additional successive term of five years each beginning in 2024, and thereafter, will be renewed for successive terms of one year each. For purposes of Topic 842, we concluded that we will exercise both of the five-year options, resulting in a remaining lease term of 9.9 years as of June 30, 2019. This lease agreement does not contain any residual value guarantee or material restrictive covenants.

Operating lease cost recognized in the Condensed Statements of Operations is as follows:


	Three Months		Six Months
	Ended		Ended
	June 30, 2019		June 30, 2019
Cost of revenue	$	46,534	$	93,069
General and administrative		46,045		92,089
Sales and marketing		2,604		5,209
Research and development		7,216		14,431
Total	$	102,399	$	204,798

Lease costs for short-term leases were immaterial for the three and six months ended June 30, 2019.

Maturity of Operating Lease Liability as of June 30, 2019 is as follows:


Six months ending December 31, 2019	$	204,798
2020		409,596
2021		409,596
2022		409,596
2023		409,596
Thereafter		2,218,646
Total lease payments		4,061,828
Imputed interest		(990,832)
Present value of lease liability	$	3,070,996

We used a discount rate of 6.0% to determine the present value of the operating lease liability on January 1, 2019.

Undiscounted future minimum lease payments under noncancelable operating leases as of December 31, 2018 as determined prior to the adoption of ASC 842 are as follows:


2019	$	170,664
2020		—
2021		—
2022		—
2023		—
Thereafter		—
Total minimum lease payments	$	170,664