NOTE 6: LEASES

The Company leases office space under agreements classified as operating leases that expire on various dates through 2022. All of the Company’s lease liabilities result from the lease of its corporate headquarters in Houston, Texas, which expires in 2021, and its Jacksonville, Florida office space, which expires in 2022. Such leases do not require any contingent rental payments, impose any financial restrictions, or contain any residual value guarantees. Certain of the Company’s leases include renewal options and escalation clauses; renewal options have not been included in the calculation of the lease liabilities and right of use assets as the Company is not reasonably certain to exercise the options. Variable expenses generally represent the Company’s share of the landlord’s operating expenses. The Company does not act as a lessor or have any leases classified as financing leases.

The Company excludes short-term leases having initial terms of 12 months or less from the new accounting guidance as an accounting policy election and recognizes rent expense on a straight-line basis over the lease term. The Company has two lease agreements, an office at the Florida Atlantic Research and Development Authority and laboratory space located at the Texas Medical Center in Houston, which are included in short-term lease expense below.

At March 31, 2020, the Company had operating lease liabilities of approximately $0.4 million and right of use assets of approximately $0.4 million, which were included in the condensed consolidated balance sheet.

The following summarizes quantitative information about the Company’s operating leases:


	For the Three Months Ended
	March 31,
	2020		2019
Operating lease expense summary:
Operating lease expense	$	55,000	$	55,000
Short-term lease expense		19,000		22,000
Variable lease expense		15,000		15,000
Total	$	89,000	$	92,000

Other information:


Right of use assets exchanged for new operating lease liabilities as of adoption date	$	670,000
Weighted-average remaining lease term as of March 31, 2020 – operating leases		1.5
Weighted-average discount rate as of adoption date – operating leases		6.8	%

Maturities of the Company's operating leases, excluding short-term leases, are as follows:


Nine months ended December 31, 2020	$	174,000
Year ended December 31, 2021		226,000
Year ended December 31, 2022		68,000
Total	$	468,000
Less present value discount		(33,000)
Operating lease liabilities included in the Condensed Consolidated Balance Sheet at March 31, 2020	$	435,000

On March 23, 2020, the Company entered into an agreement to expand its corporate headquarters in Houston, Texas, which is expected to commence in the third quarter of 2020. The initial lease term is ten years with two five-year renewal options. Fixed rent payments under the initial term are approximately $5.6 million. Additionally, the Company is also responsible for its share of operating expenses.

On March 30, 2020, the Company entered into a lease for a manufacturing facility in Houston, Texas. The lease is contingent upon the landlord’s successful acquisition of the property and is expected to commence in the second or third quarter of 2020. The initial lease term is ten years with two five-year renewal options. Fixed rent payments under the initial term are approximately $11.1 million. Additionally, the Company is also responsible for its share of operating expenses.