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Leases

6 Months Ended

Jun. 30, 2019

7. Leases

We have operating leases for our corporate offices and our manufacturing facility, and finance leases for equipment. Our leases have remaining lease terms of one year to three years, and our two primary operating leases include options to extend the leases for one to three years; those operating leases also include options to terminate the leases within one year. Future renewal options that are not likely to be executed as of the balance sheet date are excluded from right-of-use assets and related lease liabilities.

Our operating leases represent building leases for our Stockholm corporate offices and our Kungsbacka manufacturing facility. Our corporate office lease is automatically renewed at a cost increase of 2% on a yearly basis, unless we provide written notice six months prior to expiration date.

We report operating leased assets, as well as operating lease current and noncurrent obligations on our balance sheets for the right to use those buildings in our business. Our finance leases represent manufacturing equipment; we report the manufacturing equipment, as well as finance lease current and noncurrent obligations on our balance sheets for our manufacturing equipment.

Generally, interest rates are stated in our leases for equipment. When no interest rate is stated in a lease, however, we review the interest rates implicit in our recent finance leases to estimate our incremental borrowing rate. We determine the rate implicit in a lease by using the most recent finance lease rate, or other method we think most closely represents our incremental borrowing rate.

The components of lease expense were as follows (in thousands):

	Three Months Ended June 30, 2019		Six Months Ended June 30, 2019
Operating lease cost ⁽¹⁾	$	153	$	309

Finance lease cost:
Amortization of leased assets	$	157	$	318
Interest on lease liabilities		8		18
Total finance lease cost	$	165	$	336

⁽¹⁾

Includes short term lease costs of $32,000 and $66,000 for the three and six months ended June 30, 2019, respectively.

Supplemental cash flow information related to leases was as follows (in thousands):

	Three months ended June 30,			Six months ended June 30,
	2019			2019
Cash paid for amounts included in leases:
Operating cash flows from operating leases		(67	)		(189	)
Operating cash flows from finance leases		(8	)		(18	)
Financing cash flows from finance leases		(135	)		(272	)

Right-of-use assets obtained in exchange for lease obligations:
Operating leases		-			-
Finance leases		-			-

Supplemental balance sheet information related to leases was as follows (in thousands):

	June 30, 2019
Operating leases
Operating lease right-of-use assets	$	728

Current portion of operating lease obligations	$	427
Operating lease liabilities, net of current portion		266
Total operating lease liabilities	$	693

Finance leases
Property and equipment, at cost	$	3,368
Accumulated depreciation		(1,650	)
Property and equipment, net	$	1,718

Current portion of finance lease obligations	$	547
Finance lease obligations, net of current portion		807
Total finance lease liabilities	$	1,354

	Six months Ended June 30, 2019
Weighted Average Remaining Lease Term
Operating leases		1.6 years
Finance leases		2.0 years

Weighted Average Discount Rate
Operating leases ⁽²⁾		5	%
Finance leases		3	%

⁽²⁾

Upon adoption of the new lease standard, discount rates used for existing leases were established at January 1, 2019.

A summary of future minimum payments under non-cancellable operating lease commitments as of June 30, 2019 is as follows (in thousands):

Years ending December 31,	Total
2019 (remaining months)	$	207
2020		457
2021		60
		724
Less imputed interest		(31	)
Total lease liabilities		693
Less current portion		(427	)
	$	266

The following is a schedule of minimum future rentals on the non-cancelable finance leases as of June 30, 2019 (in thousands):

Year ending December 31,	Total
2019 (remaining months)	$	286
2020		589
2021		479
2022		37
Total minimum payments required:		1,391
Less amount representing interest:		(37	)
Present value of net minimum lease payments:		1,354
Less current portion		(547	)
	$	807

Disclosures related to periods prior to adoption of ASC 842

Minimum future lease payments under capital and operating lease obligations as of December 31, 2018 were as follows:

Year ending December 31,	Capital			Operating
2019	$	602		$	457
2020		616			89
2021		502			3
2022		39			-
Total minimum payments required		1,759		$	549
Less amount representing interest		(56	)
Present value of net minimum lease payments		1,703
Less current portion		(570	)
	$	1,133